THE State Government may be set for yet another tax windfall, but the $28 million expected to flow through to treasury coffers was almost a deal breaker for US-based Cleveland Cliffs’ $605 million friendly takeover of Portman.
THE State Government may be set for yet another tax windfall, but the $28 million expected to flow through to treasury coffers was almost a deal breaker for US-based Cleveland Cliffs’ $605 million friendly takeover of Portman.
As revealed in WA Business News last year, mining industry heavy-weights have been grumbling for months about the new stamp duty requirements that came in force on July 1 as part of the Gallop Govern-ment’s business tax review.
The duty is at the higher end of similar charges across other jurisdictions in Australia but, more importantly, has a much broader application, particularly in its coverage of listed companies.
Already $12 million from LionOre’s takeover of MPI Mines and the prospect of $162 million from Xstrata’s bid for WMC have blown away WA Treasury Depart-ment estimates of $6.1 million ahead of the duty’s introduction.
While the perception is that the duty hasn’t slowed the deal flow, many in the industry confirm that a number of deals have fallen through and warn the impact of the new laws has been masked by the strong equities envir-onment and renewed consolidation within the mining industry.
A source close to the Cleveland-Portman deal said the tax was an unexpected problem, coming near the end of a three-month period of negotiations when tax advice was sought as a final formality.
“This one really snuck through,” the source said.
He warned the duty could put a break on merger and acquisition activity in the State’s mining industry, which was currently at high levels, specifically for local miners looking to consolidate.
The issue lies not just with the cost to the acquirer; Portman share-holders face the cost of 16 cents per share, which will be paid to the State.
“While some may see this is a good tax – taking money from large international mining companies – the Government is really shooting itself in the foot,” the source told WA Business News.
“Like all businesses everyone looks for the best deals and if the sums don’t add up on a deal then businesses will simply move on and look elsewhere for the best deals.”
A Cleveland-Cliffs spokesperson said the duty was taken into account when Cleveland made the offer for Portman.
“While it is a significant sum of money companies always need to take into account the laws of the areas in which they operate – it is part of doing business.”
Cleveland-Cliffs chairman and CEO John Brinzo is planning a trip to Perth in the near future.
A spokesman for Treasurer Eric Ripper said the windfall would not alter the Government’s position and it did not plan to unpick the reforms made in the business tax review.
However, he said there was a review of tax policy settings and spending demand every year.
The spokesman dismissed alle-gations that the estimate had been kept low.
“This is not a political decision; the Government doesn’t second guess Treasury’s advice,” he said.
Opposition leader Colin Barnett said the stamp duty was a result of tax increases.
Mr Barnett said he had a policy to reduce rates of taxation but the Opposition had not yet released details of its tax policy.
