Australian Mining Tax Dispute Intensifies

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

10 June 2010

While the mining industry remained on the attack against the Australian government’s proposed resource super profits tax (RSPT), the country’s Prime Minister, Kevin Rudd, took the battle into the lion’s den with a speech in Western Australia.

During his speech at the Perth Media Club, the Prime Minister not only defended the tax, but also pointed out the benefits which would accrue to the mining states when the additional tax revenue is put back into infrastructural development, in areas such as roads, railways, ports and renewable energy.

He pointed out that, in what is considered to be the second phase of a mining boom that began almost a decade ago, the government is determined that, this time, the people in the mining states of Queensland and Western Australia would “get a fair share of the proceeds” from the exploitation of their finite mineral resources.

He was able to announce that the government would increase the Regional Infrastructural Fund (RIF), to be funded from the RSPT, to a total AUD6bn (USD4.9bn); an increase of AUD400m. The RIF was to begin its operations in July 2012, at the same time as the RSPT begins to be collected. The additional AUD400m in the RIF will, however, be available from 2010-11, to allow for projects to begin to be funded immediately, before the RSPT starts to accrue.

He also announced that “Western Australia should expect more than AUD2bn in additional infrastructure investment from this fund,” and that “the regions that generate so much of our national wealth should get their fair share of the proceeds of the mining boom - and that is what our tax reform plans will deliver.”

However, he gave no ground on the proposed terms of the 40% RSPT. He reiterated his view that “the existing system of inconsistent state royalty taxes is inefficient and unfair. It disadvantages mines with higher investment requirements and higher extraction costs. And it imposes a tax before they've even made a dollar of profit.”

“The RSPT will tax profits, not production,” he continued. “And it won't impose one dollar of tax until companies have made a normal return on investment. Typical resources projects earning less than 10% returns will therefore pay less tax under this reform - as the Treasury's analysis has shown.”

On the other hand, and at the same time as Rudd was speaking in Perth, representatives of the mining industry, while disputing the level of taxes that the industry was already paying, were warning that the new tax could have an effect on the global perception of Australian sovereign risk.

The Chief Executive of the Minerals Council of Australia, Mitch Hooke, was reported as saying that the government’s policy of “wealth redistribution” by way of the RSPT would damage the mining sector and cause the cancellation and delay of many projects. He added that the longer the threat of what he called the “sledgehammer” tax remained, the greater would be the loss of confidence in Australia as a destination for major investments.

Nevertheless, it is known that some mining companies have already held talks this month with the Resource Tax Consultation Panel, which is due to report to the government so that the latter can produce an RSPT final design paper later this year.

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