Majors appeal to shareholders on government tax plan

But this time he has been joined by Rio Tinto chairman, Jan du Plessis, in issuing a statement to shareholders which details the case against the Government’s Resource Super Profits Tax (RSPT).
In his second letter in a month, Jac Nasser said, “Of course I feel very strongly about protecting the interests of our shareholders and the resources industry, but I feel just as passionately about the future of Australia.”
He said that despite BHP’s efforts there has been no acknowledgement by the Government of the “major flaws of the proposed tax and the significant impact on the industry.”
The letter went on to say that the Government has not accurately represented the level of taxes BHP Billiton pays on its Australian operations, and it reaffirmed that any reform based on the Petroleum Resource Rent Tax (PRRT) model is not a solution for the mining industry.
“As I write, there is speculation that the PRRT is a solution. It isn’t,” said Nasser, “BHP Billiton has said that we are not against tax reform but believe the four principles of sound tax reform are not present in the proposed super tax.”
Mirroring the same concerns, du Plessis highlighted recently released data which confirmed that Rio Tinto has paid tax at an effective rate of 35 per cent on its Australian profits over the past decade. From 2000 to 2009 Rio’s corporate tax and royalties paid amounted to A$20 billion.
The ten-year analysis also underlined how Rio Tinto has reinvested its Australian profits back into Australia. From 2000 to 2009 it generated net profit after tax of about A$37 billion in Australia and re-invested about A$38 billion back into Australia - A$26 billion in capital expenditure and A$12 billion in acquisitions.
BHP Billiton believes that any new tax on the minerals resources industry should not “change the rules of the game” on existing projects, both as a matter of fairness, and so as to protect Australia’s reputation as a stable place for investment. Furthermore, it suggested that any reform should ensure that the overall tax is competitive with other mineral resources countries. It also believes any new tax should vary in rate by the kind of mineral resources mined, and that it be applied on the value of minerals alone - and not unintentionally penalise investments in infrastructure, processing or other support activities.
Rio Tinto stated in its letter to shareholders that the Government’s current proposals have significantly destabilised that investment framework.
“The risk that unexpected and unforeseen government action will negatively impact on the value of investments is often referred to as “sovereign risk” and, with almost half our Group’s assets invested in Australia, I am sure you will understand why our chief executive, Tom Albanese, recently referred to Australia as now being his number one sovereign risk concern."
Jan du Plessis said the group is currently reviewing all its projects in Australia under the worst-case tax scenario to assess the impact the proposed super tax will have on our future growth plans.
“However, what is abundantly clear to us,” he said, “is that had this tax been in place ten years ago, we would not have invested as much as we have in the Pilbara, and Rio Tinto would have been a much smaller producer of iron ore today.”
According to BHP Billiton, the Government has “missed the opportunity to have Treasury’s theory tested by practical experience and industry knowledge.”
Since the Government introduced the proposal on May 2nd, BHP Billiton said meetings with Government representatives have been about how the tax would be brought in, with no acknowledgement of the major design features (and flaws) of the tax such as the 40 per cent rate and application to existing projects, or on the impacts of the tax on the resources industry and investment in Australia.
“The 2009 earnings of BHP Billiton’s Australian operations were almost fully reinvested back in Australia in the form of taxes, royalties, capital applied to new and existing projects and dividends to shareholders,” said the statement.
It then went on to give ten reasons why BHP Billiton is concerned about the Government’s proposed ‘super tax’. They are as follows:

1. The proposed tax will put Australia’s future prosperity at risk.
2. Australia’s mineral resources industry would become globally uncompetitive.
3. Other resource-rich countries have previously got this wrong and it took them many years to recover.
4. There was no industry consultation.
5. Consequently the proposed super tax is flawed in design. It will not operate as intended in the real world.
6. The tax will apply to existing operations – materially changing the rules halfway through the game after billions of dollars have already been invested.
7. This means many investors will think twice before making another investment in Australia – this is sovereign risk.
8. Less future investment means fewer jobs being created and fewer opportunities for future generations of Australians.
9. It puts at risk an industry that is the backbone of the Australian economy.
10. The negative impact of this added tax will unfavourably affect all Australians.