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Australia Mulls Changes to Resource Taxation

Wednesday, March 3, 2010

During a recent speech to the Sydney Institute, Martin Ferguson, Australia’s Minister for Resources and Energy, while stressing that the government still welcomes investment in the country’s resources sector, suggested that there will be changes to the sector’s taxation regime.

Following on from the Henry review of the tax system, which the government has yet to release, he said that “some companies are concerned about what the government’s response will be” and recognized the effect that this might be having at present on investment confidence.

It has been reported that the Henry review has recommended that the 40% petroleum resource rent tax, which is presently imposed on Australia’s offshore oil and gas industry, should be extended across the whole of the country’s mining sector, in replacement of the current state mining royalties, which vary between 2% and 10% of mining company revenues.

Such a rise in taxation would obviously shrink the present and future net profitability of mining in Australia. The Minerals Council of Australia recently said that: “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.” It called the suggestion a “tax grab”.

For his part, Ferguson reminded the resources industry that, while taxation arrangements do change, sometimes in reply to requests from industry itself, it should remember that “over the course of the last two decades, under both Labour and Coalition governments, Australian industry has benefited significantly from business tax reform.”

He expressed his confidence that the government would “deliver taxation reform that is in the best interests of the nation and modernized to deal with the new challenges and opportunities of the 21st century.”