Australian mining tax to earn less than expected, UBS warns
25 June 2012
Posted by: SAIT Technical
By Nichola Saminather (Business Report/Bloomberg)
Australia's planned mining tax would raise less than half the amount forecast by the nation's Treasury in the next two years and reduce profit estimates for BHP Billiton and Rio Tinto, UBS said.
Mining companies, including BHP Billiton, Rio Tinto and Fortescue Metals Group, would pay A$1.8 billion (R15.1bn) in the 2013 fiscal year and A$1.4bn in 2014, compared with government forecasts for revenue of A$6.5bn in both years, Glyn Lawcock, a Sydney-based analyst at UBS, wrote in a report on Friday. The bank cut its estimates for profits at both BHP Billiton and Rio Tinto by 4 percent for next year, citing the impact of the mining and carbon taxes, which take effect on Sunday 1.
The mining levy "is designed to be a volatile stream of tax revenue for the Australian government, but funding a stable and growing series of government obligations”, Lawcock wrote.
"As a result of this mismatch of a declining revenue position on our commodity price forecasts and rising obligations, we believe a future Labour government may seek to either raise the tax rates or bring in other commodities.”
The government, seeking to return the nation's budget to a surplus in the year ending June 30, 2013, has said A$1.8bn in revenue from the mining tax would be diverted to increases in family payments.
Australia's price on carbon emissions, set at A$23 a ton, is expected to raise A$24.7bn in four years. The nation will transition to an emissions trading system in 2015 that lets the market determine the cost.
The carbon price would add to Australia's economic growth that would include creating an extra 1.6 million jobs by the end of the decade, Treasurer Wayne Swan said in an economic note yesterday. The average income per person would rise about 16 percent, he said.
The carbon tax would increase electricity prices by an average of A$3.30 a week, raising the cost of living by 0.7 percent, he said. More than 98 percent of households with incomes of as much as A$150 000 would get some government assistance, in the form of tax cuts and increased payments, and all families making less than A$100 000 would get help, he said.
Swan said: "In the years to come, no first-rate economy can be anything other than a clean-energy economy.
"Every cent raised from a price on carbon will be used to provide tax cuts and increased benefits to households, to support the most affected industries and the jobs that depend on them, and to tackle climate change.”
The carbon price was projected to increase power supplier AGL Energy's earnings per share by 10.8 percent in the 2013 financial year, while lowering profit at Qantas Airways by 11.6 percent and Virgin Australia Holdings by 14.7 percent, JPMorgan Chase said last week.
The price of iron ore fell by 20 percent and mining company valuations by 24 percent over the past year as slowing economic growth cuts demand.
The most emissions-intensive businesses, including those belonging to BHP Billiton, Rio Tinto and Alumina, as well as liquefied natural gas projects, would be eligible for carbon tax assistance, he said.
The mining tax, levied on 30 percent of earnings of iron ore and coal, was payable when a company's annual profit reached A$75m, so as not to burden smaller businesses, Lawcock said.
BHP Billiton and Rio Tinto's coal divisions would not have to pay any mining tax in the near term, and other coal producers' liabilities might also not be large, he said.
The government expects to raise A$3.2bn from the mining tax in fiscal 2015 and A$3.7bn in 2016, compared with UBS's forecasts of A$1.1bn in 2015 and A$538m in 2016. Fortescue is suing the government, saying the tax discriminates between states and curtails their sovereignty.