Australia’s Super Tax Meets Aussie ETFs
There’s been a lot of consternation when, after posting surging returns for most of 2009, the bottom fell out of the Australian markets after the government proposed a 40 percent super tax on the resource sector.
Exports of mined commodities have been booming for years (don’t forget,
While the details of the tax have yet to be finalized, it’s been characterized much like the proposed “excess profits tax” here in the
Australian ETFs will continue to be dragged down by the uncertainty surrounding the super tax given the heavy weighting that the materials sector has in all of them.
IQ Australian Small Cap (NYSE: KROO), which I talked about in the March 31 issue of ETF Weekly, carries a more than 28 percent weighting in materials and more than a quarter of iShares MSCI Australia Index’s (NYSE: EWA) assets are devoted to the sector.
By my count, only three of iShares MSCI Australia Index’s materials holdings will be spared the new tax and all of IQ Australian Small Cap’s holdings could be hit.
From an absolute revenue standpoint, larger players such as BHP Billiton and Rio Tinto likely won’t feel much of a pinch from new taxation, though smaller players definitely could be hurt.
The real issue posed by the tax increase is the effect it could have on project development since it may discourage miners from investing in additional capacity since the profit potential would be diminished.
I suspect that the odds of the tax actually being enacted are a bit overblown.
This is an election year in
And with miners accounting for 42 percent of Australian export revenue and 18 percent of the country’s GDP, it would be stupid for the government to bite the hand that feeds it, though that’s certainly not beyond the realm of possibility.
Even if the tax goes through, I doubt it would have much of a dampening effect on the demand for Australian resources. While the nation’s proposed 40 percent tax is the highest suggested so far,
If
But I don’t think the possibility of this new tax should really deter investors interested in the region.
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