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Will resource tax undermine market recovery?

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by Peter Switzer

More good news on the stock market front with Wall Street up again and nicely higher, which reinforces my view that we’re creeping out of the European debt woods (or are they a black forest)? Whatever, the timing of this rise suggests that the bailout plan for the likes of Greece is convincing more people that it just could work.

News from Spain

What Wall Street really liked was a heart-felt undertaking by the Spaniards to get their budget act together.

Spain told the markets that it will cut spending which will save $19 billion in 2010 and 2011. The country’s leader, Prime Minister José Luis Rodríguez Zapatero explained that public servants would face a five per cent pay cut this year. Meanwhile 13,000 government jobs will go.

Hot on the heels of the trillion-dollar promise from the EU and the IMF to back European debtor economies, this expression of responsibility from Spain eased the fears in a skittish stock market.

The statement also helped the euro gain a bit of ground after being discarded recently as the L'enfant terrible on currency markets.

Be clear

This will be an interesting test of the impact of the resource super profits tax. Will our market rebound as strongly with our big miners still under this stupid tax’s pressure?

Be clear on this, I think our miners can cop a bit more tax but it has to be a tax on super profits and not a super tax on profits, which this one is.

The rules of calculation of the super profit have to be amended to make it fair, especially for local miners which mine only at home.

Tom Seymour, the tax guru at PricewaterhouseCoopers, explained to me that these local mines will see their effective tax rate go up to 70 per cent, while the likes of BHP Billiton, with mines overseas, will have an effective tax rate of about 57 per cent. This is too high anyway. In fact, it represents a jump from 43 per cent and in actual tax dollars that’s around a 32.6 per cent jump in the tax slug.

Super hit

And you wonder why the share prices are falling. These hit our super funds which the Government is trying to help by raising our contribution from nine per cent to 12 per cent.

It’s time for Kevin and Wayne to change the rules to help the stock prices gain some of their lost ground and to ensure overseas investment keeps coming on in. After all, the Government Budget turnaround to surplus in double-quick time is based on a mining boom, so why do you want to tax the crap out of your best income-earning sector with an unfair and dumb tax?

My guess is that Kevin won’t backflip and KO the tax but they will tweak the rules, which should help resource share prices. If they don’t, share prices for our miners will lag.

For advice you can trust, contact Switzer Financial Services.

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Published on: Thursday, May 13, 2010