Friday, October 29, 2010

Nice new mining tax. It's not enough - IMF

The International Monetary Fund has declared Australia's dollar overvalued and our proposed tax on mining inadequate.

In a generally glowing assessment of the Australian economy released overnight the Washington-based organisation says the Australian economy is set to grow at 3 to 3.5 per cent, well above the 3 per cent predicted by the Treasury in its pre-election forecasts just three months ago.

The report says the mining boom will continue with iron ore and coal prices "expected to remain high in the near term".

"Sound management of the boom in Australia could permanently raise household incomes," it says. But "growing dependence on mining may amplify the business cycle as the economy will be more vulnerable to swings in commodity demand and make government revenue more volatile."

The report strongly backs Australia's new mining tax but laments that it will be "less effective" than the originally-planned resource super profits tax...

"Consideration should be given to broadening the coverage of the new tax to other mineral resources beyond iron ore and coal," the report says, arguing the tax would give Australia much-needed economic resilience.

The Fund would also like to see a higher Goods and Services Tax with the proceeds used to eliminate "inefficient state taxes and make room fro reductions in personal income taxes that would encourage increases in labour supply and saving."

The views of Fund staff often reflect the views of the Australian Treasury and Reserve Bank who they consult in preparing their reports.

The report says the dollar is "mildly overvalued," with staff estimates suggesting it is due for a fall of 5 to 15 per cent as conditions in the United States improve.

Big miners yesterday intensified pressure on Canberra to resolve the dispute over the detail of the mining tax, calling on the government to set a ceiling on all future mining tax revenue.

In its submission to the mining tax transition group the Minerals Council of Australia calls for the government to cap the total of all minerals taxes and charges including state royalties at 45 per cent of profits.

Such a commitment would require the government to reach a deal with the states or to refund miners all future increases in state royalties – a position Prime Minister Gillard has ruled out.

The Council also criticised a discussion paper published by the transition group, saying it thought it failed to reflect the deal struck on the minerals resource rent tax.

Published in today's SMH and Age

IMF Report on Australia

Related Posts

. Want to know about the government's Resource Super Profits tax?

. Could our mining executives have been having a lend of us?

. Wednesday column: The deal didn't end sovereign risk, it brought it on