Australian Mining Tax Attacked By State Groups

by Mary Swire, Tax-News.com, Hong Kong

01 November 2010

In their submissions to the Policy Transition Group (PTG), the Chamber of Minerals and Energy of Western Australia (CMEWA) and the South Australian Chamber of Mines and Energy (SACOME) have both attacked the current position of the Australian federal government not to credit future state royalty increases against the proposed mineral resource rent tax (MRRT).

When the Australian federal government announced its agreement on an MRRT in July this year, it believed that it had agreed to offset only all existing state royalty payments against the MRRT, but the mining companies have now said that they were counting on all royalties, including any future increases imposed by state governments, to be deductible.

The current position is therefore that, while the federal government has confirmed that it will not change its position that future unscheduled royalty increases will not be compensated against the MRRT because, it says, any such increases would effectively be a means of transferring revenue from federal to state level, the state governments and the mining companies still remain with the opposing view.

In its submission to the PTG, for example, CMEWA said that miners in Western Australia (WA) face the prospect of a “double-tax whammy”, unless the federal government guarantees future rises in state royalties are credited under the proposed MRRT. It said that the federal government must ensure the MRRT “did not further damage the international competitiveness of the sector, responsible for driving the national economy and supporting half a million jobs in WA.”

“A scenario where the federal resource rent tax comes on top of state royalties, without appropriate crediting, is unacceptable – it has the potential to make Australia the most highly-taxed mining province in the world,” CMEWA Chief Executive, Reg Howard-Smith, said.

Howard-Smith said “failure to credit royalties would seriously undermine the future revenue base of the WA government – in the coming year, it’s estimated the state will receive AUD3.2bn (USD3.1bn) in royalty payments. The state is responsible for much of the administration and regulation of our industry – and its right to draw a royalty on resources belonging to the people of Western Australia is without question.”

He confirmed that “the existing regime ensures all money derived from WA projects is actually spent in WA. Policies such as Royalties for Regions are seeing hundreds of millions of dollars pumped back into the regional communities, from where these minerals are extracted.”

In similar fashion, SACOME has said “the current position of the federal government not to credit state royalty increases against the MRRT is a slap in the face for our fledgling iron ore and coal industry which will left facing a double tax.”

SACOME pointed out that the terms of reference for the MRRT states that “all state and territory royalties can be credited against MRRT.” However, it said that, in its issues paper, the PTG says that “state and territory royalties will be creditable at least up to the amount imposed at the time of announcement, including scheduled increases and appropriate indexation factors.”

“It is our understanding that the government’s position is that unscheduled royalty increases after May 2010 are not to be creditable against the MRRT. This is unsatisfactory and contrary to the terms of reference. It is clear that the terms of reference do not delineate between scheduled or unscheduled increases“, SACOME's Chief Executive, Jason Kuchel, said.

“With the South Australian government having recently increased royalties in the state budget, from 3.5% to 5%, estimated to raise another AUD66m over three years from the mining industry, it would be unjust and uncompetitive to hit the South Australian mining industry with a double tax,” Kuchel said. “The South Australian government was already reviewing royalty rates with a view to lifting them before the MRRT was announced.”

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