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Cost cutting at Rio Tinto after $3billion loss

Rio Tinto has reported a $3bln loss - its first ever full-year loss. But its new chief is promising to cut costs and put it back on track.

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A profits squeeze of historic proportions lies behind the government's deteriorating budget position according to the federal Treasury, which says things have not been as bad since the global financial crisis.

And resources giant Rio Tinto paid no mining tax in 2012, but the new Australian chief executive, Sam Walsh, said the company was ''paying our way''. Mr Walsh, appointed last month after a series of write-downs led to the dismissal of his predecessor, Tom Albanese, was speaking at a London briefing on Rio Tinto's full-year profit results, including a net loss of $US3 billion, its first.

Mr Walsh said the Minerals Resource Rent Tax was intended to tax super profits, not normal profits, and was ''operating as it was physically designed'' given commodity prices in 2012 were lower than 2011, and company profits had dropped accordingly.

Rio Tinto CEO Sam Walsh.

Rio Tinto CEO Sam Walsh. Photo: Tamara Voninski

Mr Walsh said Rio Tinto was the highest tax payer in Australia in 2011, paying roughly $7 billion.

Appearing before the Senate's economics committee, Treasury head Martin Parkinson promised to reveal details of the final deficit or surplus for 2012-13 before the September election although he was not legally obliged to.

The election is due on September 14. The Treasury's pre-election financial statement is due on August 22, but the final budget outcome is not due until September 30. Dr Parkinson said that although he would not have all the figures ready before the election he should be able to produce a final figure for the underlying cash balance - the most-watched measure of surplus or deficit - well ahead of the pre-election outlook.

''Nobody will be under any illusions, or shouldn't be under any illusions, that they won't know the underlying cash balance number in time for the election,'' he said. ''It will be, or should be, publicly available. The bottom line will be known.''

Australia's budget position had deteriorated swiftly because commodity prices had crumbled while the Australian dollar remained high.

''We would traditionally have expected the exchange rate to fall as well,'' he said. ''The fact is the exchange rate has stuck up.

''What that has meant is that for firms in sectors such as mining where revenues are in US dollars and costs are in Australian dollars, their margins are squeezed. It's a profit squeeze that is flowing through into particular types of revenue.''

Treasury's head of Australian macroeconomics, David Gruen, said income growth was its weakest relative to economic growth since the global crisis.

In the past year nominal gross domestic product had grown far slower than real gross domestic product. Nominal GDP is the dollar value of what's produced and earned. It's the measure that drives tax revenue.

Nominal GDP grew just 1.9 per cent in the year to December, far below real GDP growth of 3.1 per cent. The only other times nominal GDP growth fell behind real GDP growth were in the economic slump of 1961 and the 1997 Asian economic crisis.

With Paddy Manning

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