The Minerals Resource Rent Tax (MRRT) bills are being debated in the Senate this week. Acceptance of such a tax appears to be growing among commentators. However, the proposal by the Greens that a company tax cut be limited to small businesses has reminded us that the Minerals Resource Rent Tax bills are part of a package.
The current bills are:
- Minerals Resource Rent Tax Bill 2011
- Minerals Resource Rent Tax (Consequential Amendments and Transitional Provisions) Bill 2011
- Minerals Resource Rent Tax (Imposition-General) Bill 2011
- Minerals Resource Rent Tax (Imposition-Customs) Bill 2011
- Minerals Resource Rent Tax (Imposition-Excise) Bill 2011
- Petroleum Resource Rent Tax Assessment Amendment Bill 2011
- Petroleum Resource Rent Tax (Imposition-General) Bill 2011
- Petroleum Resource Rent Tax (Imposition-Customs) Bill 2011
- Petroleum Resource Rent Tax (Imposition-Excise) Bill 2011
- Tax Laws Amendment (Stronger, Fairer, Simpler & Other Measures) Bill 2011
- Superannuation Guarantee (Administration) Amendment Bill 2011.
Legislation for company tax cuts is still to come.The Minerals Resource Rent Tax bills
A Background Note, The Minerals Resource Rent Tax – selected concepts and issues
, sets out the logic of the proposal. In economics, a rent is defined as a payment for a resource where the supply of the resource does not change with price. The fact that supply does not change, so economic activity is not affected, makes it very attractive to tax rents. The amounts of mineral resources are finite, and they are non-renewable. So it is possible that they generate rents that will persist over time, and therefore that they can be taxed without distorting economic activity.
However, there are a number of controversial aspects to the MRRT. Each is dealt with in more detail in the Background Note.
First, while the supply of the minerals themselves may be completely inflexible, in fact the saleable commodity depends on investment, exploration, extraction and transport, all of which may be influenced by profit levels and hence by the tax. In this regard it is relevant that other (competing) countries levy mining taxes in various ways. Several examples are set out in the Background Note, but it is difficult to make comparisons.
Second, the MRRT does not tax all minerals, only iron ore and coal (in addition to petroleum and gas).
Third, the MRRT was intended to replace royalties collected by state and territory governments by allowing a rebate against MRRT for royalties paid. There is no guarantee that all royalties will be refunded, because they can exceed the amount of MRRT liability – especially as state and territory governments have not agreed not to increase royalties. Royalties are a tax on production rather than a rent tax, so the MRRT, being levied in conjunction with them, is not a ‘pure’ rent tax. The Petroleum Resource Rent Tax bills
There has been a Petroleum Resource Rent Tax (PRRT) on petroleum projects in offshore areas other than the North West Shelf since 1988. (The North West Shelf project has been subject to Commonwealth excise and royalties.) The Petroleum Resource Rent Tax Assessment Amendment Bill 2011 extends the tax to petroleum and petroleum products produced onshore and to the North West Shelf offshore project. As the Bills Digest for this bill
explains, it also extends the scope of the tax to include shale oil and coal seam gas (except that coal seam gas that is produced as a by-product of coal mining is covered by the MRRT regime); it will apply to income produced incidentally from services provided in relation to carbon capture and storage; and it provides that resource tax refunds received by taxpayers will be treated as assessable income.
There is a separate Bills Digest
for the three PRRT Imposition bills, which are technical in nature. The Tax Laws Amendment and Superannuation Guarantee Amendment bills
These bills provide, in effect, for the spending of much of the revenue from the MRRT and the PRRT. Detailed treatment can be found in Bills Digests No. 79
and No. 77
The net revenue from the MRRT (allowing for offsetting deductions of company tax and interactions with other taxes but before associated measures have been taken into account) is estimated at $3.7 billion in 2012–13, $3.8 billion in 2013–14, and $3.1 billion in 2014–15. Expenditure on proposals which have been linked to the tax out to 2014-15 is set out in Table 1 of the MRRT Background Note. It totals $1.1 billion in 2012-13, $5.0 billion in 2013-14, and $4.1 billion in 2014-15.
Note that these figures have been derived from information contained in a number of different budget and other documents reflecting different assumptions about the projected state of the economy into the future. Some may have been updated since publicatoin of the Background Note. They are included only to suggest orders of magnitude, and are bound to be imprecise. Nonetheless, it looks quite likely that the expenditure will be more than the revenue.
More significantly, the cost to budget of the increase in the superannuation guarantee is projected to rise to $3.6 billion a year in 2019-20 (Budget Paper No.2 2010-11 page 42). This, combined with the tax cuts, is a long term budget impact which is by no means certain to be covered from the MRRT revenue.
On the other hand, it is quite plausible that economic growth will make it affordable: in the end the dollars from one tax are exactly the same as those from another.