Australia's new 40% mining super profits tax...the "Greater China tariff "

On Tuesday, the Australian government levied a 40% Resource Super Profits Tax on its mining industry to take effect from July 2012. The company tax rate would be cut from 30 percent to 29 percent in July 2013 and to 28 percent a year later.

In one stroke, the cost of doing business shot up overnight. The Australian mining sector accounted for $94 billion in exports during 2009, 38% of the total.

Multinationals like Rio Tinto and BHP Billiton were left scrambling in their wake as Australia is a vital cog in their global mining operations. Resource mining is a capital intensive industry and long term planning is essential, sometimes with payback taking many years.

Perversely, is this otherwise a Great China Tariff, a tax to soak the Chinese? The resource sector comprises 9% of Australia's economy. Australia exports 80% of its resources. Who is the biggest buyer of those resources? China. The Chinese bought US$42.4 billion of resources from Australia in 2009.

China is scouring the world for oil, natural gas, copper, coal, and iron ore supplies. It has a desperate need for the raw materials ... and lots of money to toss around in order to get it. Plus…China doesn't just buy products from Australia, it buys mining companies too (US$$20 billion worth in the last 18 months or so).

The proposed Australian super-profit tax reinforces the lesson China learned in 2005 and 2006: the resources aren't yours unless they are in your house. Instead of sending more money on taxes to foreign governments, China will spend that money in its domestic mining and energy infrastructure. Right now, China has no choice but to "pay up" for Australian resources. It has to have them to continue building. But stories like this are huge drivers for China's domestic exploration programs...

China can't replace Australian supplies of iron ore, tin, and oil with domestic deposits tomorrow... but the country does have some excellent prospects.