K Rudd magic & why the mining super-profits tax is a superannuation tax

Troughs, pigs and magic taxes - photo by Perfektionist on Flickr licensed under Creative Commons
My utmost admiration for the government on the Miner’s Super-tax. There’s a true symmetry to this which just has to be mentioned.

It’s called a Super tax because it’s a tax on ‘Super-profits’ in the mining sector.

But of course the beauty of it is that it is really also a tax on the superannuation (‘super’) savings of most Australians (the impact on project starts, jobs etc is well covered elsewhere).

A mining tax on fat cat mining companies, that’s fine isn’t it? Well mining companies make up 20% of the ASX market cap.

Let’s assume that BHP’s share price fall from the date of the announcement on May 2nd as a big diversified miner is a proxy for the fall in the mining index associated with K Rudd’s new super dooper tax. As of today (4 weeks later at June 1st) it’s fallen about 10% (from $71 to $64).

So any Australian’s superannuation portfolio which mirrors the ASX may have seen that fall about two percent (10% of 20%) to the extent that it mirrors the ASX 100.

How much is Mr Rudd going to get from that tax – well Ernst and Young had it at about $9bn per annum.

Some fairly old Wikipedia estimates of the Oz market cap put it at 1.39 trillion (yeah I know these figures are really rubbery but you get my drift).

2% of $1.39 trillion (that’s 13 with 11 zeros after it) is the market cap decline because of this tax or $26 billion.

But hey it’s not that bad because 40% of the market is owned by furriners (we don’t need them to buy in and support our market!) who we don’t care about so the market might only really have declined for Australian shareholders as a result of this tax by $15.6bn (60% of $26bn).

And Australian superannuation fund holders only hold part of the market owned by Australians (maybe 80% if we assume they mostly hold domestic portfolios) so maybe Australian collective super funds are down by $12.48bn.

Now we could go on but I can see you are yawning –  it’s not over yet because the tax revenue only comes in about 2 years time (2012) and that nasty forward-looking market seems to have made the money disappear now – so you’d have to discount cash Mr Rudd is not going to see for at least 2 years. On the other hand you could argue that some of the fall relates to Europe and not K Rudd.  Anyway I’ll stop here  …  you can see where this is going.

Magical huh?  A tax that is supposedly applied to fat cat miners turns out to really come out of Australian worker’s pockets, and makes a net $3.5billion just disappear (after you net off a -$12.48bn decline in national super holdings and $9bn in tax revenue on the plus side in 2012).

Poor Mr Rudd huh? Things you can do with a nation’s savings and a publically traded stockmarket are not the same as what you do with your own household budget.

 PS. I do not hold a position in ANY mining stocks (don’t understand them). And if you want more accurate figures go get ’em – mine are only based on some crude estimates and an hour’s work in Wikipedia (a dodgy website that the government needs to filter out presumably).

Posted under Risk

This post was written by mike on June 1, 2010

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