Could Australian Resource Tax Come to the U.S.? (BHP, RTP, XOM)

The Australian government’s proposed 40% super profits tax has caused a considerable uproar among mining companies operating in that country. BHP Billiton (NYSE:BHP) has said it would use all its influence to defeat the tax. Rio Tinto plc (NYSE:RTP) and Xstrata have also complained loudly about the proposal. Rio Tinto and BHP have also indicated that the proposed tie-up between the iron ore operations of the two companies is in jeopardy over the tax.

The main argument against the tax is that it will chill investment in Australia. As proposed, the tax would be applied to profits that exceed the rate on long-term Australian bonds, currently around 6%. Many think that is too harsh, proposing to raise the point at which the tax would kick in.

In late 2005, a US Senate committee raked a few oil companies over the coals and threatened to impose an excess profits tax. At the time, Exxon Mobil Corp. (NYSE:XOM) was on its way to a year of record-breaking profits on the back of crude prices over $70/barrel.

The Speaker of the U.S. House of Representatives issued a statement declaring, “Oil companies need to do more to inform the American people about what they are doing to bring down the cost of oil and natural gas.” The response the American people got is “Not one thing, because we oil companies just have to suffer the good times with the bad.”

That could be changing a bit. In the Obama administration’s budget package for 2011, there are several proposals that would cost oil and gas companies as much as $45 billion over the next ten years. Every proposal eliminates a subsidy that is already in place. One item, the percentage depletion allowance, accounts for nearly a quarter of the savings. Oil and gas companies also get a tax break for domestic manufacturing wages paid. That one is worth nearly 40% of the $45 billion.

Another potential change could come in federal royalty rates, currently at 12%-17%. In combination with the depletion allowance and the other tax subsidies granted to oil and gas companies, the US collects far less than almost any other country in the world from those who extract the country’s minerals.

While the success of the US system is arguable, what is not is that as energy prices rise, US energy companies make an awful lot of money. And there’s nothing more attractive to a politician than a big pile of money.

Paul Ausick