May 26, 2010 / 5:29 AM / 10 years ago

UPDATE 2-Rio Tinto fears Australia mining tax may spread

* Rio says other countries may copy Australian mining tax

* Treasurer Swan says more than 80 companies in consultation

* Group of economists backs the new tax (Recasts, adds Treasurer Swan comments)

By Victoria Thieberger

MELBOURNE, May 26 (Reuters) - Global miner Rio Tinto Ltd (RIO.AX) (RIO.L) said on Wednesday it was concerned that other nations could follow Australia’s lead by introducing a windfall tax on mining profits.

Australia’s new super profits tax, due to come into effect in mid 2012, has angered the mining industry, which has warned it puts mine expansions at risk and could push investment overseas.

Uncertainty over the tax proposal has wiped billions of dollars off Australian mining firms' market value and added to pressure on the Australian dollar AUD=, which is leveraged to the Asian growth story and has lost 11 percent against the U.S. dollar since the tax was announced in early May.

“We are concerned that other countries may see this as something they want to try out, too,” Rio CEO Tom Albanese told shareholders, later adding the government should reconsider what he called a “seriously flawed” tax.

Analysts have said another resource-rich nation, Brazil, could consider Australia’s tax as a precedent and also raise taxes on iron ore.

Mongolia, Zambia, Peru and Ecuador have also considered and in some cases implemented a similar mining windfall profits tax.

Chile, the world’s biggest copper exporter, had already announced temporary higher royalties to help pay to rebuild towns destroyed by a major earthquake earlier this year.

A senior Australian Treasury official, David Parker, who is leading government consultations with miners over the new tax, said resource-rich nations were increasingly moving towards mining rent taxes and away from royalty systems.

He said some provinces in Canada and some U.S. states also had resource rent taxes.

Australian iron ore miner Fortescue Metals Group (FMG.AX) has threatened to pull $15 billion in projects over the tax, while Rio Tinto has put every Australian investment plan under review.

Albanese, who has labelled the new tax as his company’s top global sovereign risk issue, said he was confused by the government’s messages on the tax.

“I’ve been confused by the government’s mixed messages,” he told Rio’s annual meeting, in reference to suggestions the booming mining sector needs to be slowed to help other parts of the economy and bring down the Aussie dollar.

INTERIM REPORT ON TAX DUE THIS WEEK

Rio has also strongly criticised the consultations over the new tax, saying the talks are too narrow and do not address issues around the competitiveness of Australia’s industry.

Treasurer Wayne Swan, however, said more than 80 mining companies were now involved in consultations over the new tax, although he declined to comment on areas of possible compromise, including the starting threshold for the new tax, set at around 6 percent and based on the 10-year government bond rate.

“The government is continuing to talk to many mining companies about their views. We are genuine in our consultation,’ Swan told reporters.

“I’m not ruling anything in, or out, because I’m going to repeat what I said at that press conference on day one, which [is] we are committed to getting a fair share for the Australian people,” he said.

“We’ve put out the design of the tax and we are consulting on that, and that is what we are continuing to do.”

The tax is the centrepiece of Prime Minister Kevin Rudd’s re-election campaign and efforts to counter sliding opinion polls that hold the outside chance of a hung parliament. [ID:nSGE64J02A]

Australia’s Treasury hopes to hand the government an interim report later this week on its initial talks with miners.

The government on Wednesday won backing for its tax plan from a group of leading economists, who said the new super profits tax would not harm Australia’s current resources boom.

The group of 20 mainly academic and policy economists issued an open letter in which they said the replacement of state-based royalties with a resource rent tax offered a “superior” tax that would benefit Australians.

For more on the proposed tax: [ID:nAUTAX] (Additional reporting by Sonali Paul in MELBOURNE, Rob Taylor and James Grubel in Editing by Ed Davies and Ian Geoghegan)

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