July 2, 2010 11:29am by David Farrar

Miners win, NZ wins

news.com.au reports:

THE Government will lose $1.5 billion in revenue after agreeing to cut the resource super profit tax from 40 per cent to 30 per cent.

Prime Minister Julia Gillard has also agreed to water down other key aspects of the tax, which will apply to just 320 companies involved in mining iron ore, coal, oil and gas. More than 2450 companies were originally flagged in the deal. …

In another major concession, the tax will apply from a much higher rate than originally planned 10-year Commonwealth bond yield.

The new cut-in rate has been adjusted to the long-term bond rate plus seven per cent – an approximate rate of about 12 per cent.

The original proposal to tax any profits above the risk free rate of return (long-term Govt bonds) was the most outrageous part of the proposal. It would have been an awful precedent that making a higher profit than sticking your money in the bank was undesirable.

To offset the lost revenue from the new mining tax agreement, the Government will cut the company tax rate to 29 per cent from 2013/14.

Small companies will still benefit from an early cut to the company tax rate to 29 per cent from 2012/13.

This is quite significant for us. Our corporate tax rate will be 2% lower than Australia’s for the next three years or so, and 1% lower thereafter. This is a first for NZ.

The Australian Government may find that this revised tax doesn’t bring in as much money as they think. If I owned a mining company I would start buying lots of assets to increase depreciation to make sure my profits stayed below 12%.

But that is a challenge for the future. Gillard will get a big boost from this settlement and I am expecting an election in the near future.