Planned expansion by BHP Billiton (ASX:BHP) and Xstrata (LON:XTA) may be dramatically cut back according to Citigroup (NYSE:C) and others, as a new 40 percent levy by the Australian government, along with double taxation which is paid to states, could cause the commodity mergers and acquisitions sector to “dry up.”
According to BHP, once the new levy is in place, their total tax burden would reach 57 percent in 2013, and incredibly high amount. Even now it stands at 43 percent for them.
Exposure for BHP is 51 percent in Australia, while Xstrata’s exposure is about 33 percent of all its assets.
This is incredibly shortsighted by Prime Minister Kevin Rudd and the government, as already a number of deals are being reexamined as to whether to proceed with them if it increases the exposure of a company to Australia.
Rudd recently said if the 40 percent levy had been in place over the last 10 years they would have collected A$35 billion during that period from the miners, but that’s more of an assumption than anything else, as many deals which generated a lot of that business may never have been made, and when mining companies shy away from Australia as a result of the enormous tax, Rudd and the government will probably have to backtrack and change things around to generate more revenue.
Consequently, the mergers and acquisition business for resource companies in Australia is expected to drop significantly because of this misguided imposition on the mining companies.
