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IMF says mining tax will not hurt Australia's economy

world Updated: Jun 23, 2010 11:57 IST

The International Monetary Fund on Wednesday gave "in principle" support for Australia's proposed 40 percent tax on mining profits, which has prompted a fierce response from the powerful industry.

The IMF's deputy head of tax policy Philip Daniel said there were no indications that the Resource Super Profits Tax (RSPT) would threaten Australia's economic prospects, as asserted by the outraged mining sector.

"IMF staff welcome the RSPT proposal in principle. It shifts the whole Australian resource tax system strongly in the direction of neutrality," Daniel told a tax conference in Sydney.

"The tax proposal doesn't show adverse effects on Australia's economic prospects either," the Australian Broadcasting Corporation reported Daniel as saying.

"Consensus forecasts offer evidence that the outlook for business investment has in fact strengthened for Australia in recent months."

Daniel said the proposed tax reforms would strengthen Australia's public finances over the long term and reduce risk for investors, "while leaving a substantial share of resource profits in private hands".

"The argument on tax competitiveness tends to ignore the fact that the new proposals incorporate large risk bearing by government -- to the extent of 40 percent of losses, and more in the case of exploration," he added.

"Few other jurisdictions seeking petroleum and mining investment are able to offer that."

The so-called "super profits" levy, to apply from July 2012, has drawn a furious public backlash by major mining firms including Rio Tinto, Xstrata and BHP Billiton.

Global resources companies warn the tax is too harsh and will drive investment abroad, with a number shelving and reviewing their Australian projects. Rio has described the tax as its number one sovereign risk worldwide.

Prime Minister Kevin Rudd on Wednesday said his government was working with the miners towards a "balanced and sensible outcome" based on the government's 40 per cent rate and threshold level of six per cent of revenues.

"Now, if we reach this balanced and sensible outcome, I can fully predict that a number of the major mining companies will still not be happy with it," Rudd told reporters.

"We're working calmly, methodically, carefully through the details which are being put forward."