NEWS RELEASE
NEW ECONOMIC RESEARCH CONFIRMS RSPT
WILL HARM AUSTRALIAN ECONOMY
Sydney and Perth, 21 June 2010
The Australian Government’s Resources Super Profit Tax (“RSPT”) is based on flawed theory and will, if
implemented as proposed, have an adverse effect on Australian mining employment, mining
investment and the Australian economy, according to a new Ernst & Young research report
commissioned by the Chamber of Minerals and Energy of Western Australia and Xstrata plc.
Released today, the report entitled “A Critique of the Economic Theory and Modeling Underlying the
Australian Resource Super Profits Tax Proposal”, concludes that the proposed RSPT will:
Lead to fewer jobs, reduced investment, and lower personal income tax revenue from workers
in mining and associated industries, as a result of some new Australian mining investment
possibilities being deferred or curtailed
Reduce the attractiveness of Australia for mining investment relative to other ‘mining’
geographies
Raise the cost of capital required for all investments in Australia (mining and non-mining
related) due to increased political (sovereign) risk, thereby reducing investment spending
in
Australia
Reduce the valuation of existing Australian mining companies, impacting superannuation funds
and Australia’s Sovereign Wealth Fund and resulting in lower personal income tax collections
from capital gains and other taxes; and
Increase the
volatility of Australian tax revenue. RSPT revenue would increase during high
commodity price periods, but could be zero for extended periods during low commodity prices.
In the report, authors Dr. Thomas S. Neubig and Dr. Robert J. Cline of Ernst & Young LLP state, “We
believe the proposed RSPT and the Treasury’s economic analysis rest on a flawed theory and
application of ‘super profits’ taxation;
an unrealistic assumption about the immobility of
mining investment;
and the absence of a complete analysis of the proposal’s economic and
fiscal short-run, medium-run and long-run effects.
“A sophisticated economic model’s results are only as good as its underlying assumptions. The model
used by the Government incorporated a key assumption that mining investment is completely
immobile. We do not believe that critical assumption is realistic for the 21st century global mining
industry.
“Introduction of a new, untried tax on a critical sector of the Australian economy merits careful
consideration and a complete analysis of the economic and fiscal effects. Before making such a
significant change, Australian policymakers and the public need additional analysis of the RSPT
proposal to understand the potential policy risks.”
The paper briefly describes the RSPT and the Government’s economic analysis of the proposal;
identifies flaws in the theory and application of ‘super profits’ taxation underlying the RSPT proposal;
describes the unrealistic assumptions about the immobility of mining activity; and suggests additional
economic and sensitivity analysis important for policymakers’ understanding of the trade-offs and
economic effects of the proposal.
Dr. Neubig is a Principal in the U.S. firm of Ernst & Young LLP (“EY”), National Director of EY’s
Quantitative Economics and Statistics practice, and former Director and Chief Economist of the U.S.
Treasury Department’s Office of Tax Analysis and former President of the National Tax Association. Dr.
Cline is an Executive Director of EY, National Director of EY’s State and Local Tax Policy Economics
practice, and former Director of the Office of Tax Research in the States of Michigan and Minnesota.
Ends
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