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Minerals Council Warns Against Australian Resource Tax Grab

Thursday, February 18, 2010

In its 2010-11 pre-budget submission, the Minerals Council of Australia (MCA) looks for tax reform proposals that enhance the competitiveness of Australian industry, and is particularly concerned at the prospect of a “tax grab” against Australia’s minerals sector.

The MCA’s chief executive officer, Mitchell Hooke, said: “On tax reform, the industry is looking to work closely with the government as it considers its response to the Henry review. The MCA considers the best way to progress tax reform is to base the Government’s initial response to recommendations on any new national minerals royalty regime on high-level principles and a clear commitment to consult with relevant stakeholders, especially industry and state governments.”

“The minerals industry is not a milch cow for repairing the Budget or for other policy objectives such as reforms to state and company taxes or the social security tax interface,” he added.

The MCA confirmed that the mining industry already makes a significant contribution to tax receipts in Australia, with total taxes paid by companies and individuals estimated at around AUD21bn (USD18.8bn) in 2008-09 – more than double the amount in 2005-06.

In its submission to the Henry review, the MCA indicated general support for a shift towards a profit-based regime, though this support was heavily qualified and conditional upon getting the design of any future regime correct. “Poorly designed reforms,” it now says, “which compromise predictability, neutrality and efficiency would undermine Australia’s international competitiveness, increase its sovereign risk and jeopardize investment and business growth to the detriment of the industry and the nation.”

“The imposition of a cash flow tax, like Australia’s Petroleum Resource Rent Tax (PRRT), on the minerals sector would be unprecedented and the MCA has never indicated support for the 'simple' transposition of a PRRT onto the minerals sector,” the submission continues. “Any proposal that mining should be taxed at the same rate as oil and gas would represent a significant tax increase that would make Australian mining operations among the most highly taxed in the world and seriously damage the competitiveness of Australian projects.”

The MCA believes that changes in taxation and royalties must not undermine the basis upon which long-run investment decisions have been made. Any changes should apply only to prospective investments, not to investments that have already been made.

In addition, the overall taxation burden (local, state and federal taxes and levies) should be “internationally benchmarked and be competitive against other global investment destinations, recognizing the mobility of capital (financial, human and technological) and that Australia competes for foreign direct investment in a highly integrated global industry.”

It also emphasizes that “capital investment and financial return characteristics differ across resources commodities, starkly between oil and gas, but also significantly between minerals commodities. Achieving a competitive taxation and royalty regime for different resources products requires different designs and taxation/royalty rates specific to the characteristics of each resources product group.”

The MCA also considers that the government’s proposed climate change measures would impose new costs on Australia’s trade exposed industries, ahead of other major emitters and trading partners. It opposes the government’s carbon pollution reduction scheme (CPRS) in its current form, saying that it “would cost thousands of jobs and billions of dollars of investment in regional and remote Australia, while failing to materially reduce global greenhouse gas emissions or deliver one cent to new low emissions technologies.”

In opposing the CPRS legislative package, the MCA advocates a better alternative based on a phased approach to the auctioning of permits. The failure of the Copenhagen meetings implies that substantial additional global action is needed before Australia adopts policy measures that impose new costs on trade exposed industries.

It is of the opinion that there will be no global solution to climate change without the development of low emissions clean coal technologies. “The Government,” it states, “has taken important steps to support the development and commercial deployment of low emissions coal technologies. This support must continue and complement the Australian coal industry’s AUD1bn investment in this technology.”

Finally, the MCA also attacks the government’s proposed new research and development (R&D) tax credit system which, it says, would reduce incentives for mining innovation in Australia. “The draft legislation narrows definitions and introduces complex and prescriptive rules that will limit eligible claims for new tax credits in large R&D projects. The proposed changes run counter to the government’s stated of intention of boosting innovation in Australia.”

It adds that, as “the result will be a more complicated program with higher compliance burdens and reduced incentives for innovation activity, especially at the critical planning stage of projects,” the MCA will be urging that the government makes significant changes.

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