Tax tipped to halt new mines

SHANE WRIGHT ECONOMICS EDITOR

Billions of dollars of new gold, nickel and copper mines would be scrapped because of the planned resources super profits tax, a report compiled for the Minerals Council of Australia predicts.

Modelling in the report, compiled by KPMG and based on assumptions provided by council members, suggests a key feature of the tax - the way the Government will share some of the mine's risk - will actually drive away investment by slashing the rate of returns.

While iron ore, coal and bauxite mines would still be viable under the tax, KPMG found their returns would be cut by up to 57 per cent.

However, returns for new gold, nickel and copper mines would be negative, making them unattractive to any prospective miner.

KPMG warned that international miners would focus on projects overseas that offered better returns.

The Minerals Council said the research proved the "disastrous consequences" of the proposed tax.

It demanded the Government drop the proposal and start a new process of consultation with miners.

But Prime Minister Kevin Rudd, speaking ahead of the Minerals Council's annual dinner in Parliament House tonight, said the Government would not change its approach.

He said other elements of the Government's reform package, such as the cut in the company tax rate, increased superannuation guarantee and tax concessions for small business operators, depended on the profits tax going ahead.

And he attacked some of the claims of the mining sector, rejecting suggestions the tax would be a dagger at the throat of the industry.

Mr Rudd said the industry had previously claimed that the introduction of the petroleum resource rent tax, native title laws and the Government's changes to industrial relations laws would ruin miners, but it had grown stronger and more profitable under the changes.

He said negotiations on the tax would continue over the weeks and months ahead.

Opposition Leader Tony Abbott said his advice to Mr Rudd was to dump the tax.

"This is a bad tax, bad for workers, bad for retirees, bad for consumers," he said.

Also yesterday, Rio Tinto contradicted the Government's estimates of the level of taxes paid by mining companies in Australia by releasing its own independently audited figures.

In justifying the proposed tax, Treasury last month put the average company tax rate on resources companies at between 13 and 17 per cent in the decade to 2004-05.

Treasury also said at the time that the mining industry's average tax rate was about 12 per cent lower than the average tax rate across all industries.

But Rio Tinto repeated its claim yesterday that it pays much more.

"More than $20 billion was paid in corporate taxes and royalties alone in the past 10 years," the company said in a statement.

A Senate estimates committee was told yesterday that preliminary estimates by the Resources, Energy and Tourism Department showed the tax would not push up energy prices.