Rudd’s May Revolution is succeeding! Any day now we’ll see a hammer-and-sickle red flag flying on top of Parliament House.

Mining tax fails to spook Chinese investors. June 21, 2010. SMH
“Australia and China have inked commercial deals worth more than $10 billion, largely in mining, in another sign that a new Australian mining tax has failed to dampen inward Chinese investment.”
http://www.smh.com.au/business/world-business/mining-tax-fails-to-spook-chinese-investors-20100621-yqdb.html

And, on top, Twiggy “Fortescue” Forrest is involved in a project.

Another project involves ANU and… brace yourselves, people… the Party School of the Central Committee of the Communist Party of China.

I guess Twiggy may yet seek political asylum… in Beijing. And, with any luck, he’ll take Wilson Tuckey with him.

Run for the hills, folks: the end of times is upon us.

It would be interesting if you went back through the analysis with the correct deduction. But I leave that to you!

It makes sense that the GBR must be times earnings, as we are considering this as a virtual partnership miner-Govt, and the GBR would be the Govt’s financial cost. I also noticed he never mentioned Investment in his example.

The point about “depreciation of tenement cost and the interest expense” is that, from Gross Total Earnings of $100, following Pascoe’s example, miners currently are entitled to deduct 4 items:

(1) Royalties ($5)
(2) Depreciation of plant and equipment ($25)
(3) Depreciation of tenement ($20)
(4) Interest on borrowed money ($15)

So, following Pascoe, currently net profits before tax are 100-5-25-20-15 = $35.

Under the RSPT, and always according to Pascoe (1) disappears, (3) and (4) are not allowed to be considered towards the determination of net profits before tax (although they still apply). This way, the previous deduction list becomes one item only:

(2) Depreciation of plant and equipment ($25)

And Pascoe’s net profits before tax are: 100-25 = $75. It is on this definition of net profits before tax ($75) that Pascoe first applies the RSPT (deducting $8 for “Govt sanctioned profitability of the project”) and then applies the 40% RSPT rate: ($75-$8)*40% = $26.80.

As I had understood, the net profit calculation before tax was:
100-25-20-15 = $40. On this, one would temporarily deduct $8 and apply the 40% RSPT: ($40-$8)*40% = $12.80.

He makes a big deal out of this, and maybe he should, but my question is: is this really a part of the RSPT? In other words: are miners not entitled to deduct depreciation of tenement ($20) and interest on borrowed money ($15), at least for their part in the virtual investment? This is what appears very odd to me.

If you think about it, your own example mentions Earnings (which I assume are net of all costs, or equivalent to what Pascoe calls net profit before tax, plus royalties: $40).

What I referred with the double taxation remark, however, is an altogether separate matter: in his calculation, it matters which tax you apply first. If you apply first the RSPT, and then the corporate income tax, you get a result. If first you apply the corporate income tax, and then the RSPT, you get a different result.

For some reason, I got confused and thought this difference meant a double taxation. Clearly not so, because first RSPT is deducted and the result (obviously, net of RSPT) is what pays corporate income tax.

Interest is determined by your capital structure. The cost of renting minerals shouldn’t depend on how you choose to balance equity and debt, anymore than wages.

I am at least comforted by the fact the a widely reported Morgan Stanley analyst report today said the Govt should use the Market Value of Assets rather than Book Value of Assets (my terminology) for the deduction. There’s another factor of 4! At this rate by the end of next week the Govt will be paying money to the miners. Hooray!

Disregard the second paragraph. Michael Pascoe first finds the RSPT (without previous corporate income taxes) and then, after deducting the RSPT, he finds the corporate income taxes.

This way, his profits (although still questionable, as they do not include “depreciation of tenement cost and the interest expense”) are not necessarily taxed twice

As a follow up to our conversation:

Michael Pascoe has published an article (with numerical examples) explaining his understanding (and apparently PriceWaterhouseCoopers’) of the mechanics of the RSPT.

He says that the RSPT does not contemplate “depreciation of tenement cost and the interest expense” in the determination of profits, which to me sounds extremely odd. But then again, he’s Michael Pascoe and I’m only the Magpie (bitter old fart and local eccentric, to be charitable).

According to Pascoe, this exclusion of costs inflates the profits to be taxed under current corporate income tax. But, on top, the RSPT rate is applied BEFORE taxes. So, I would say (if am not mistaken) according to Pascoe, some of this “profit” is taxed twice!

Maybe you should have a look at what Pascoe says:

“Mining Kev’s 77% effective tax rate”
http://www.smh.com.au/business/mining-kevs-77-effective-tax-rate-20100617-yhw2.html

“Remember the raison detre of the RSPT is to fund a much needed increase in superannuation benefits”

Yes. At least, that’s the rhetoric. The reality is that funds generated by the RSPT will be mostly re-distributed among business: from the company tax income reduction to the infrastructure promised to the miners in the vain attempt to convince them.

“Remember the raison detre of the RSPT is to fund a much needed increase in superannuation benefits to fill a gap that Australia (and all western nations) face over the next 20-30 years with aging populations.”

As a chartalist, maybe the Mule would have his own ideas about this.

“I think the Rudd govt is brave for even attempting to solve it. ”

Here we agree, to some degree, although, to be frank, I am no Rudd fan. Mind you, between Rudd and the plutocrats, there is no question for me: Rudd wins.

“As far as an adjustment to the existing royalties scheme with an allowance for profitability that would presumably include a % of earnings. That would be the RSPT by another name would it not?”

Questions are there, friend and companion, that ought not be inquired. ;-)

As far as an adjustment to the existing royalties scheme with an allowance for profitability that would presumably include a % of earnings. That would be the RSPT by another name would it not?