The government's proposed resources tax is a sensible policy if carefully structured, GMO chief investment strategist and co-founder Jeremy Grantham has said.
"If the tax only results in pushing back the return on equity to more normal levels, that would seem to be easily contained within the capitalist structure," Grantham said yesterday during a visit to Australia.
"I would say very sensible policy," he said.
In normal circumstance taxes can be passed on to clients, but in the Australian context resources companies are restricted to do so because of their high dependency on export markets, Grantham said.
"When you export you charge absolutely as much as you can charge," he said.
"You are a bad capitalist if you're not.
"If you pass [tax] on, you run into the question of: 'Can you find a market?' It is hard to pass on into certain export markets and, therefore, it can affect the profits."
The main issue, therefore, was to bring down profits without affecting the competitiveness of Australian resources companies in the global markets, Grantham said.
"They should very carefully work it out," he said.
"At what level does it still allow [resources companies] to export at a global price and just take down their profit margin so, instead of making 42 per cent return on equity, they move down to a purely 20?"
GMO manages more than US$100 billion in assets worldwide.
