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Western Australia Royalty Tax Hike To Impact GST Distribution

Wednesday, September 13, 2017

The Western Australian Government has confirmed that the introduction of a tiered royalty rate for gold will have a negative impact on the amount of GST revenue the state receives.

Last week's state Budget included a proposal for the introduction of a tiered royalty rate from January 1, 2018, with the rate to be determined by the Australian dollar price of gold. The current 2.5 percent rate will apply for each month when the gold spot price (averaged over a month) is AUD1,200 (USD964) per ounce or less. A 3.75 percent rate will apply (on the fully royalty value) when the price is above AUD1,200.

The Government estimates that, based on the current gold price, the increased rate equates to an additional royalty of about AUD20 per ounce. In addition, the current exemption for the first 2,500 ounces of gold produced each year will be removed from July 1, 2018, for miners who produce more than 2,500 ounces per year.

The Government expects the changes to raise AUD392m over the forward-estimates period, with the revenue to be used to "assist with Budget repair."

However, according to ABC, the Government has now confirmed that, due to the nature of the GST distribution system, the state will lose around AUD50m of the AUD392m it expects to raise. ABC said that a spokesperson had also acknowledged that the figure is likely to rise over time, with "roughly 60 percent" of the additional revenue raised beyond the next four years being lost.

Last week, the Minerals Council of Australia estimated that "around 60 percent of the additional revenue raised will be re-allocated to other states via the GST distribution." It argued that the decision to hike the royalty rate had been prompted in part by the fact that Western Australia does not receive its "fair share" of the GST it raises.

The state's share is currently estimated at 34 percent.