Wayne Swan, Australia's Deputy Prime Minister and Treasurer, has expressed his contentment after the ratification of a new mining tax which has been debated in Parliament for close to two years. The government hopes that this 30% tax on coal and iron ore production will boost its revenues by approximately A$11 billion. The companies affected by this tax expressed disappointment, with many saying that this so-called super-tax will negatively affect investment in the country's commodities sector – an extremely important component of the Australian economy.
After the severe financial crash in 2008 many countries took measures aimed at stimulating their economies, with Chinese commodity demand proving especially robust given the Chinese government’s efforts to boost infrastructure and housing construction. China recently accounted for more than 40% of industrial commodities, and commodity producing countries such as Australia and Canada have enjoyed relatively good economic fortunes since the financial crisis. This is in contrast to countries like the US, UK, and other western European nations, where the services and financial sectors form much larger parts of economies relative to commodity production.
But these developments awoke the interest of the Australian government, and by 2010 it announced its plans to implement a so-called super-tax on mining companies' profits. Hitherto, discussions at the Australian Parliament have been heated, with both opposing parties and mining companies describing the measure as a financial suicide.
Analysts have calculated that in total, the Australian mining industry could suffer profit losses of up to 30%. Ratings agencies forecast that this new tax will also increase international investors' doubts about the mining sector, and could damage the entire mining sector’s creditworthiness. The production of coal and iron ore is one of Australia's most important means of income. BHP Billiton, Xstrata and Rio Tinto will be some of the companies to suffer from this new levy. So far, however, plans to extend this tax to gold and uranium producers have failed.
Other governments have been watching Australia's tax plans with interest, with investors fearing that other important commodity producing countries might follow Australia's example. Brazil, the world's second-largest iron ore exporting country after Australia, has long been considering imposing a tax on commodity exports and increasing mining-licence fees.
The Australian Association of Mining and Exploration Companies (AMEC) vehemently criticized this new tax, stating that it will undermine Australia's competitiveness at the world markets and reduce foreign investment into Australia. According to AMEC, this tax has dealt a serious blow to the country's reputation as a good business environment, and will damage investors’ faith in Australian legal protection.
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