RSPT making mine sites like utilities

A rant about the ongoing RSPT debate in Australia. I don't blame you for not reading on...

When I lived in the UK I worked almost entirely with the water and rail sectors of that country. Fascinating experience, and a study in paths of privatization.

The regulatory framework is a bit long and dense, so I wont go into it too much here, but there are elements of the coming Resource Super Profits Tax (RSPT) that are strikingly similar.

Within the water industry in particular there is something called Regulatory Capital Value or RCV.

Fundamentally this is used by the regulator to help them determine what price a water utility should ask for their water over a 5 year period. (Their regulatory cycle) It gives them an agreed idea of the return on capital a company should be able to generate.

This is part of what the federal government is trying to do in Canberra Australia. By calling for a tax on all profits above 6%, they need to have an agreed valuation point to determine profit.

Return on invested capital seems to be the going approach, with the government looking to use historic valuations. meaning - cheaper.

So instead of a system like in the UK where RCV is indexed to the Retail Price Index (RPI), our beloved government is suggesting to state the value of the assets at lower rates. Meaning the tax kicks in on lower cash levels.

In a sense giving miners the ability to earn 6% on past valuations, not valuations that match what they would be bought for, which may be as low as two or three percent today. And for every dollar over that, 40% goes to the Government. (And whatever charges, royalties etcetera)

Makes a lot of small companies with marginal resources suddenly look a lot more appealing than one large one don't they? Not to mention the sudden attractiveness of other resource laden regions such as Canada, Latin America and Africa.

The problem here, when comparing to the UK utility regulatory framework, is that these were once public companies, and the regulator was set up to mimic the impacts of a competitor in their market space.

I don't think there is anybody saying that mining is not competitive is there? At any time there are countless West Perth and Terrace CEO's looking for cash, debt, skilled resources and ongoing client contracts. (The binding sort)

The work in environments with competition and negotiation at their core. Particularly in the unlisted iron ore and coal commodities. And lets not forget that not every year is a good year, regardless of how much demand there presently is in China.

Do they really need a cap on what they can earn? Do they really need to change the underlying financial justifications for many small and medium sized investments started over the past few years?

The further you look into this tax, the more ridiculous and inappropriate it appears. If you had access to 40% of every dollar over 6% profits from a major national industry, and you were charged with spending it wisely for Australians - would you give it to the Federal government?