Australia Proposes Higher Taxes; Stocks Fall

Mayank Mehta, Chandrasekhar Atreya and Darlington Musarurwa
03 May, 2010
New York City

The Australian stocks fell after government announced 40% resource tax as early as 2012. The manufacturing index jumps to 59.8 in April indicating near-trend expansion in the economy. The RBA is scheduled to meet today to decide measures to contain inflation.

[R]8:00 PM Sydney, Australia – The Australian stocks fell after government announced 40% resource tax as early as 2012. The manufacturing index jumps to 59.8 in April indicating near-trend expansion in the economy. The RBA is scheduled to meet today to decide measures to contain inflation.[/R]

The benchmark stock index in Sydney trading closed lower after the Australian government said it plans to reduce corporate taxes and increase mining tax on resource companies.

Prime Minister Kevin Rudd and Treasurer Wayne Swan yesterday unveiled changes to the existing taxation system aimed at increasing government revenue from a mining boom fueled by demand from China and India.

The proposed 40% resource tax will come into effect from 2012. Prime Minister Kevin Rudd said these changes will help the government pay for hospitals, retirement benefits and reductions in corporate taxes.

The Australian stocks fell following this announcement.

The Australian dollar climbed against the yen after the $146 billion bailout package for Greece reduced demand for yen.

The Reserve Bank of Australia is meeting today to decide on action needed to contain doubling inflation on near-trend pace of economic acceleration and concerns about European debt.

The near-trend expansion of economy was confirmed by the performance of the manufacturing index which jumped 9.3 points from March to 59.8 in April, record since May 2002.

According to the survey by the Australian Industry Group and Pricewaterhouse Coopers in Canberra today, the manufacturing is expanding at a pace that suggests that the economy is accelerating. Any figure above 50 shows the industry is expanding.

In Sydney trading ASX 200 Index declined 0.5% or 21.9 to 4,785.50.

Of the ASX 200 index stocks, 77 gained, 102 fell, and 21 were unchanged. Biota Holdings led gainers in the index shares with a rise of 8.2% followed by Boart Longyear jumping 6.1%.

The Australian dollar advanced 0.2% to 92.60 U.S. cents.

House Prices Rise 4.8% in March

Australian Bureau of Statistics reported today that the price index for established houses for the weighted average of the eight capital cities increased 4.8% in March from the previous quarter and advanced 20% from a year ago.

Increases in the quarter were mainly spurred by Melbourne 6.7%, Sydney 5.3%, Perth 3.5%, Brisbane 2.0%, Adelaide 2.7%, Canberra 5.4%, Hobart 4.2% and Darwin 3.6%.

However, annually, house prices rose in Melbourne 27.7%, Sydney 21.0%, Canberra 20.6%, Darwin 17.5%, Perth 15.0%, Hobart 14.1%, Brisbane 12.1% and Adelaide 10.8%.

The report notes that the movement in the preliminary established house price index for the weighted average of the eight capital cities between September quarter 2009 and December quarter 2009 has been revised lower from an estimated increase of 5.2% to 5.1%.

40% Super Profit Tax proposed for Miners

Australian Prime Minister Kevin Rudd announced yesterday a proposed tax system overhaul that will see a new 40% tax imposed on super profits by industries that have benefited from shipments of raw materials to India and China.

Under the proposed legislation, mining royalties don’t reflect soaring commodity prices.

According to Rudd, the proposed Resource Super Profits Tax might come into effect in July 2012, while the company tax rate will be slashed from 30% to 29 % in July 2013 and to 28% in 2014.

Government will also increase the proportion of salaries that Australian workers must save for their retirements from the current rate of 9% to 12% by 2020.

Resource-rich states will continue to reap mining royalties, but the federal government would refund those costs to mining companies before calculating their federal tax debt.

In addition, the tax would be levied on profits after all the costs of mining operations, capital investment and dividends to shareholders are deducted.

It is forecasted that the interventions will increase the country’s gross domestic product to 0.7% annually and also prevent a “two-speed economy.”

An estimated A$5.6 billion of the mining tax revenue will be spent over a decade on public infrastructure critical to the industry such as ports, rail and roads.

ASX Movers

Macarthur Coal Limited led decliners in the S&P ASX 200 index with a loss of 9.4% followed by Virgin Blue Holdings Limited 7.5%, Energy Resources of Australia Ltd 6.8%, Atlas Iron Limited 6.3% and Whitehaven Coal Limited 6.2%.

Biota Holdings Limited led gainers in the S&P ASX 200 index with a rise of 6.3% followed by Boart Longyear Limited 6.0%, PaperlinX Limited 6.0% and ResMed Inc 4.2%.

Other Movers

BHP Billiton plc fell 2.9% to A$39.55 and Fortescue Metals Group Ltd declined 3.7% to A$4.41 after the government said it will impose a 40% resource tax on the profits earned from Australian resources according to news reports.

Macarthur Coal Limited plunged 9.5% to A$14.00 after the producer of pulverized coal shares tumbled as investors worried that Peabody Energy may cancel a $3.8 billion offer after the federal government proposed a new tax on miners.

Orica Limited added 4.5% to A$27.64 after the company reported a A$238 million loss in material items. The industrial explosives maker reported net profit dropped 75% to A$55.1 million for the six months to March 31, and revenue fell 18.5% to A$3.2 billion.

Origin Energy Limited dropped 1.5% to A$16.13. The company posted 9% rise in third-quarter output and a 19% rise in revenues.

Rio Tinto Limited declined 4.0% to A$69.18 after the company’s offer was rejected in Guinea after a $2.5 billion deal was struck with Brazil''s Vale and BSG Resources for full ownership of the Simandou iron ore deposit.

Santos Ltd the producer of oil and gas fell 5.0% to A$13.14.