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  • The duffer’s guide to the Resources Super Profits Tax

     

    The Government says the old tax system has failed to keep pace with the spiralling profits generated by the big miners. The miners believe the new tax is not a tax on “super profits” but on very mild profits.

    This is how the tax would work.

    Under the current system, mining companies pay 5 per cent of annual income to the state where they operate as royalties.

    A company earning $300 million in revenue would pay royalties of $15 million.

    It then pays federal company tax. This is calculated by deducting operating expenses of say $100 million, another $95 million for depreciation of equipment and $5 million for interest on money borrowed to pay for day-to-day running of the business.

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    It also subtracts the $15 million royalty paid to the state. That gives a figure of $85 million which is taxed at 30 per cent – a total of roughly $26 million.

    When added to royalties it leaves a total tax bill of $41 million, (41 per cent tax.) Under the proposed super profits tax, companies still pay the same amount for royalties.

    The super tax kicks in after a company earns more than the government long-term bond rate (currently 5.7 per cent).

    To calculate the super tax on $300 million a company deducts the $100 million operating expenses, $95 million for depreciation and a capital allowance from the Government to offset set-up expenses of about $5 million.

    That leaves a total of $100 million, taxed at 40 per cent – or $40 million. The royalty already paid is then deducted, leaving a total of $25 million.

    Company tax at the new lower rate of 28 per cent is then calculated using the existing equation, except the $25 million super tax is also deducted, leaving a total of $60 million to be taxed.

    That would mean the company owed $17 million.

    When the royalty, super tax and company tax are combined it comes to $57 million – or an effective tax rate of 57 per cent.

    If a company fails to turn a profit, the government would reimburse 40 per cent of its initial investment.

    Lowering the company tax rate to 28 per cent means miners who make a small profit will pay less tax.

    The tax is retrospective and will be applied to projects already underway. The Government will reap upwards of $12 billion in the first two years, with a third going to a scheme to lift superannuation levies from 9 per cent to 12 per cent.

  • Labor facing by-election annihilation

     

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    State Labor has leaked polling showing it expects to cop a record swing of up to 27 per cent this Saturday. The by-election also comes amid a backdrop of two ministers quitting over scandals.

    Premier Kristina Keneally has only bothered to visit the electorate four times thus far, while Mr O’Farrell has been there on more than 20 occasions.

    The Premier has said the demands of her job have stopped her visiting more but there is no doubt Labor probably does not want to see her associated with a large loss.

    She told The Daily Telegraph this month she expected a “very big swing” in the seat. “What’s concerning is they continue to raise with me what Karyn Paluzzano did and what’s been interesting is people will even say to me, ‘she was a good local member but she lied’,” she said.

    The by-election is being closely watched by federal Labor strategists, who acknowledge that Mr Rudd himself might be an issue, despite it being a State seat.

    A senior Labor source revealed internal Labor polling had shown many voters were now fed up with the Labor brand generally, both at a federal and state level, which could have serious implications for the Federal Government in NSW when it goes to the polls later this year.

     

  • Revolving door costs taxpayers millions

     

    One employee, understood to be Graeme Wedderburn, a former chief of staff to former premier Nathan Rees, was terminated after working 10 months but received $139,000 rather than the standard $35,500. Mr Wedderburn’s contract stipulated that he would be paid half of his annual salary if he was dumped.

    The second, who worked for seven months, received $96,000, $74,300 more than the guidelines.

    Mr Achterstraat said the Department of Premier and Cabinet should follow its own rules when spending taxpayer dollars. “The rules are clear on severance pay. There should be no special deals,” he said.

    ”The severance pay guidelines are a bit like the salary cap and like a salary cap they work best if everybody knows the rules and everyone sticks to them.”

    The report found most terminations followed the 2007 election – despite there being no change of government – the resignation of Morris Iemma in 2008 and the rolling of Nathan Rees last year.

    The director-general of the Department of Premier and Cabinet, Brendan O’Reilly, rejected the recommendation that severance should be paid only according to the guidelines, saying he intended to keep his right to make exemptions ”when appropriate”.

    Yesterday Ms Keneally said there were now no staff on a special deal. ”Nobody in my government has those sorts of arrangements,” she said.

  • UN considers review of alleged carbon offset abuses.

     

    The controversy surrounds companies which currently receive carbon credits for capturing and destroying the powerful greenhouse gas HFC-23 – a by product resulting from the production of the refrigerant gas HCFC-22.

    CDM Watch has alleged the way the CDM is structured means that chemical gas manufacturers based in China and India and South and Central America have been incentivised to increase the production of HCFC-22 and HFC-23 as they can then earn Certified Emissions Reductions (CERs) carbon credits, which can be sold into carbon markets such as the EU Emissions Trading Scheme.

    Lambert Schneider, a former member of the UN climate change secretariat’s Methodologies Panel and one of the original designers of the CDM system, has joined the ranks of its critics. “The amount of HCFC-22 production and HFC-23 generation appears to be mainly driven by the possibility to generate offset credits rather than other factors,” he said.

    Speaking to BusinesGreen.com, CDM Watch director Eva Filzmoser said the CDM iniative was creating perverse incentives that ran counter to its original goals of promoting more sustainable activities.

    “The essence of our complaint is that we accuse the CDM Project of massively inflating HCFC-22 production,” she said. “We would like to see the UN respond to this concern by amending the methodology that is in place at this stage.”

    According to Filzmoser the CDM is not the right place to deal with the destruction of HFC-23. “We think it should all be dealt with under the Montreal Protocol [covering ozone depleting gases],” she said. “Until this happens we think the CDM incentives need to be lowered as they are much too high at the moment.”

    The Montreal Protocol dates back to 1987 and aims to phase out the use of ozone depleting chemicals, including several groups of halogenated hydrocarbons.

    David Abbass, public information officer at the UN Framework Convention on Climate Change secretariat, told BusinessGreen.com that the UN is considering the evidence of abuse of the CDM system and will adjust its safeguards if necessary,

    “A request for revision of the methodology used in these projects is now with the CDM Executive Board’s Methodologies Panel,” he said.

    He added that there were already safeguards in the existing CDM project assessment methodology designed to prevent abuse of the system. “Specifically, no new plants can qualify to earn credits and the amounts that can qualify are pegged to historic production levels,” he said. “The question now is whether the safeguards need to be adjusted or added to. That’s what the Board will be looking at.”

    The CDM board is due to discuss the issue at its next meeting from the 26 to 30 July.

    However, CDM Watch maintains that the abuse of the system is widespread and endemic and will not be easy to correct. “There might be some projects out there that are not flawed but they are hardly even countable let’s say,” said Filzmoser. “If a rule incentivises abuse you are much more likely to see that abuse than if the framework tries to set in place measures that would avoid gaming the system. Unfortunately industry always wants to get more money.”

  • Mining giants push demands on Rudd over resources super profits-tax

     

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    Miners to launch new anti-tax ads The Australian, 10 hours ago

    The statement concluded by stating that “at present, there is no formal acknowledgment from government that these key issues will be addressed”.

    But while the government remains committed to a 40 per cent tax rate, the Prime Minister confirmed just hours after the meeting today that it might be prepared to budge on transitional arrangements that were “particular” to certain industries affected by the tax.

    “On the different qualities and different circumstances of let’s call it `sections of the industry’ it’s quite plain that we will be considering with different parts of the industry their respective requests for transition arrangements which may be particular to their industry,” Mr Rudd said in a press conference held before question time.

    “Whether we respond positively to that is a separate matter, but that is currently the negotiation process that Martin Ferguson is directly engaged in.” 

    His comments came as Tony Abbott attacked the government for not considering more flexible tax rates for different parts of the resources sector as part of its consultation with the miners.

    The Liberal leader is maintaining his opposition to the 40 per cent resources super-profits tax and criticism of the government for its lack of consultation with the miners before announcing its detailed proposal.

    Mr Abbott said the consideration of a flexible tax for different minerals should have been addressed before the announcement on May 2 of the new tax.

    “This is a good question and it’s one that the government should have thought about before it made its decision,” he said this morning.

    “I mean, this is a government which decides first and thinks later. Again, it’s no way to run a country.

    “And this idea that the Prime Minister is somehow going to demonstrate how tough he is by having a great big fight followed by a great big backflip is just crazy.”

    Mr Abbott’s comments follow on from question time yesterday when Opposition MPs tried to target the government over the level of consultation it engaged in before pushing ahead with the tax.

    Mr Rudd hit back in question time today, seeking to portray himself as a reformer pitted against an anti-reform Coalition.

     “This is a debate between those who support the reform and those who oppose reform,” he said. “Those who support reform believe a profits-based regime for the future is the right way to go.”
     
    Mr Rudd sought to link the Coalition to the interests of mining magnates and billionaires like Clive Palmer, and to those who were opposed to change in the industry.
     
    “The Leader of the Opposition stands alone with his new best friend, the pin-up boy of the Liberal and National Party, Clive Palmer.
     
    “Mr Speaker, they (the opposition) will simply take a position in this debate which is subservient to the likes of Clive Palmer in pursuit of a sectional interest, in pursuit of an individual who bankrolls the Liberal National Party in Queensland.”
     
    Earlier, spelling out his position on mining taxation reform, Mr Abbott said he thought the existing regime was “fine”.

    “The better the mining industry does, the more tax it pays. It pays more tax through royalties when production goes up. It pays more tax through company tax when profits go up. That’s the way it’s always been. That’s the way it should stay.”

    The Rudd government is now negotiating “generous transition provisions” looking at different resource sectors in different ways.

    Mr Ferguson said today the petroleum sector, minerals sector and low value resources sector, including sand and gravel, had argued against uniform transitional arrangements for the government’s proposed resources profits tax.

    “They are each arguing that there is no one-size-fits-all model,” he told ABC Radio.

    “What I am doing is actually taking on board the generous transitional arrangements that we indicated we’re prepared to think about and working them through with the Prime Minister and the Treasurer and treasury and actually thinking about what are the potential nature of those transitional arrangements.

    “We’re not talking about different tax rates there will be headline rate of 40 per cent.”
     

  • Govt under scrutiny over mining tax ads

    Govt under scrutiny over mining tax ads

    Yahoo!7 June 16, 2010, 9:30 pm

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    The Rudd Government is facing an inquiry into its broken promise on political advertising.

    7News can reveal a public servant who recommended the advertising watchdog be dissolved is now being paid a small fortune to do the job himself.

    Auditor-General Ian McPhee will front a Senate committee in Canberra tomorrow to publicly detail his concerns about Prime Minister Kevin Rudd’s back flip.

    Earlier this year Mr Rudd dumped a system which proposed advertising campaigns be scrutinised by the auditor-general independently.

    He has since passed the role onto a committee of former public servants, including advertising review author Dr Allan Hawke.

    The way in which Mr McPhee was swept aside by Dr Hawke’s review has guaranteed a new controversy.

    Dr Hawke is career bureaucrat and former chief-of-staff to Paul Keating. His review led to Mr McPhee being dumped from the independent role.

    Dr Hawke took 18 days and was paid $60,000 to recommend a new panel to oversee government ads, which he now heads.

    He works four days a month for $175,000 a year.

    The move came despite Mr Rudd’s “100 per cent guarantee” promise before the 2007 election that government advertising would be independently reviewed.

    In an explosive letter, copied to Mr Rudd, Mr McPhee said the government review “seriously misunderstands” his role.

    He said it contains “a number of inaccuracies” and “generally softens” the rules removing “rigour and discipline in this sensitive area.”

    Mr Rudd suggested Mr McPhee was uncomfortable being the umpire of government advertising

    “The Auditor-General in fact wrote to me and indicated that he regarded this as potentially in conflict with his position,” Mr Rudd said.

    Other politicians, like Independent Senator Nick Xenophon, see it differently.

    “Make no mistake, the government has sacked the independent umpire on this,” he said.

    “The Australian people have every right to think this stinks.”

    Greens Senator Bob Brown has a bill before parliament to reinstate the auditor-general’s role, as the $38 million taxpayer-funded mining tax ad blitz continues to flood our screens.

    “It’s again an example of the executive government simply changing the rules to benefit itself,” Senator Brown said.