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New Resource Taxes Could Be Australia's Bane

In the wake of this week's share market meltdown, a new report from Ernst & Young reveals that the threat of higher taxes to be slapped on the the resources sector could weaken the Australian economy, which narrowly escaped the contagion of the global financial crisis two years ago.

"During the global financial crisis one of the reasons Australia avoided going into recession was because commodity prices were historically high. Ratings agency, Standard and Poor's warned in June that commodity prices face a potential sudden correction. The last thing we should be doing is putting in place a new tax on a strong growth sector of the Australian economy that helped us avoid a recession during the GFC," said Mr Hugh Tobin, Director of the North Australia Project at the Institute of Public Affairs.

As the large economies of the United States and Europe barely recovered from the global financial crises, it would be destabilizing for the national economy at the moment to consider taxing the mining sector and for just the basis of wrongly assuming that the resource boom in Australia was inevitable.

China's Investments and Imports

Mr Tobin said that if the Australian government will insist on this carbon tax, this will make the country an unattractive destination for foreign investment. China is now looking into other alternative resource markets so as to reduce further reliance on Australian resources.

The Ernst & Young report warns of a global trend towards 'resource nationalism', whereby countries tax the best performing area of the economy in order to balance their budgets and slow the development of a 'two-speed economy'.

These findings were confirmed by global mining giant Rio Tinto who on Sunday warned that the imposition of a carbon tax, on top of the MRRT, was ill-timed and would lead to companies moving their focus from Australia to overseas projects.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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