The Un-Australian Resources Tax has been defeated !!!
The Resources Tax proposed by Rudd/Swan/Henry, Gone !
A great day for the nation in that commonsense prevailed. It is also a good day for the global inflation outlook, please see below.
Most importantly perhaps the demise of the “super profits” tax means in a very real sense that scores of key people immediately involved in the recent necessary fracas, can now get back to more productive work, like continuing to develop the business and national income opportunities presented by our fortunate geology and geography.
Twenty two million people sitting on top of one of the world’s wealthiest piles of rock, geographically located at the door step of the new engine of global growth, China/Asia, can now get back to making the most of this historic moment.
The shift to a new Mineral Resource Rental Tax is a far more equitable arrangement. As a strong supporter of maximising the income for to the national account from the resources sector, I still feel we should not have one, and allow maximum benefit through normal taxation. Nevertheless the new MRRT is infinitely more workable. The headline rate is cut from 40% to 30%. The threshold goes up from the bond rate to the bond rate plus 7%. Iron Ore and Coal are the focus and the tax is no longer retrospective in nature.
The new tax will impact around 320 companies, as opposed to the previous 2,500 reach. From what was supposedly to a tax review, the system has still become more complex, but for those more capable of coping with that complexity.
Financial market impact is as we have highlighted, Bullish!
Herston Economics has for sometime forecast that the RSPT would be defeated, and that resources would jump higher as a result. Especially when this favourable development overlays the reality of Europe coping very well with sovereign debt and maintaining a positive growth path, the US continuing to improve, as well as China continuing to power ahead.
While the bears still stretch their arguments about doom and gloom, all the data, even that which they seek to spin, still points to strong global growth for as far as the eye can see. Expect resource company stock prices have all bottomed long term, back when we said they did a couple of weeks ago, and will trend remarkably higher from here.
The Australian dollar: we haven’t changed our forecast for 96 cents by year end, and $1.0300 early next year.
It is also a good day for the global inflation outlook.
The proposed resources super tax was going to significantly crimp fresh Australian investment just at a time when strong growth is coming on line in Europe and the US, as well as China. We have spoken before how there is a real risk of a global shortage of commodities as a result of this fresh wave of synchronised growth, late this year and into 2011.
The new rental tax supports fresh investment and increased production which will help to take the edge off any inflationary pressure that may develop as a result of a still expected spike higher in commodity prices toward year end.
Clifford Bennett
Chief Economist
www.herstoneconomics.com
