Minerals Resource Rent Tax: changes to revenue and expenditure estimates

Budget Review 2012–13 Index

Kai Swoboda

When it announced the introduction of a Resource Super Profits Tax (RSPT) in May 2010, the Government directly linked the revenue from the new tax to a number of superannuation and other tax expense measures, including:

  • funding the income tax forgone from lifting the superannuation guarantee from 9 per cent to 12 per cent
  • the introduction of a $500 low income government superannuation contribution for those earning less than $37 000 to effectively compensate for the 15 per cent superannuation contributions tax paid
  • providing for a higher concessional contributions cap for workers aged 50 and over with superannuation balances below $500 000 from 1 July 2012
  • a phased cut in the company tax rate to 28 per cent from 2013–14, with a one-year head start for small business from 2012–13
  • allowing small businesses to immediately write off all assets costing more than $5000 from
    2012–13, and
  • introducing a standard deduction of $500 for work-related expenses from 1 July 2012, rising to $1000 from 1 July 2013.[1]

Following a period of consultation in the second half of 2010 and negotiations in early 2011 between the Government and some mining companies to make a resource rent tax-based more palatable for the mining industry, the RSPT was modified to what became the Minerals Resource Rent Tax (MRRT). The key differences between the RSPT and MRRT were that the RSPT covered all minerals and had a headline tax rate of 40 per cent and the MRRT covered only coal and iron ore and had a headline tax rate of 30 per cent. A key change to linked expenditure measures under the MRRT was that the reduction in the company tax rate was to be 29 per cent rather than 28 per cent, with small businesses still to receive a one-year head start from 2012–13.[2]

The Bills introducing the MRRT passed the Parliament on 19 March 2012 and received Royal Assent on 29 March 2012. Several of the linked measures, including lifting the superannuation guarantee and low income government superannuation contribution, have been legislated and commence from 1 July 2012.

The 2012–13 Budget included announcements relating to several linked measures, including abandoning the company tax rate cut and the standard deduction for work-related expenses, and deferring the higher concessional contributions caps for those aged 50 or over. (For a summary of abandoned or deferred measures in the Budget see the Parliamentary Library’s analysis of the 2012‑13 Budget savings measures). A new package of measures, described as redistributing some of the MRRT revenues, provide for transfer payments to low income earners and families, and some tax relief for some companies through revised taxation arrangements.

So what is now the overall picture for the expected revenue from the MRRT and related expenses?

MRRT revenue

Estimates of revenue raised by the MRRT have been revised twice since the introduction of the MRRT-related Bills in the Parliament in November 2011. Revisions in the November 2011 MYEFO and 2012–13 Budget have resulted in revenue reductions of $1.4 billion between 2012–13 and 2014–15 compared to the November 2011 projections (table 1).

Table 1: Changes in Minerals Resource Rent tax revenue projections

2012-13

2013-14

2014-15

2015-16

May 2010 announcement of Resource Super Profits Tax

$3.0 billion

$9.0 billion

Not available

Not available

November 2011 introduction of MRRT Bills

$3.7 billion

$4.0 billion

$3.4 billion

Not available

November 2011 MYEFO

$3.7 billion

$3.8 billion

$3.1 billion

Not available

2012-13 Budget

$3.0 billion

$3.5 billion

$3.2 billion

$3.7 billion

Difference between introduction of MRRT Bills and 2012–13 Budget

$0.7 billion

$0.5 billion

$0.2 billion

Not available

Sources: Australian Government, Budget measures: budget paper no. 2: 2010–11, Commonwealth of Australia, Canberra, 2010, p. 45, viewed 9 May 2012; Revised Explanatory Memorandum, Minerals Resource Rent Tax Bill 2011, p. 4, viewed 9 May 2012; Australian Government, Mid-Year Economic and Fiscal Outlook 2011–12, Commonwealth of Australia, Canberra, 2011, p. 264, viewed 9 May 2012; Australian Government, Budget strategy and outlook: budget paper no. 1: 2012–13, Commonwealth of Australia, Canberra, p. 5–20, viewed 9 May 2012.

Several commentators, including mining executives, continue to question whether the Government will raise this revenue, considering that various factors are likely to contribute to lower than expected MRRT revenue.[3] It is also possible that moves by state governments to increase state royalties based on the volume of production, which companies can offset against any MRRT liabilities, may further reduce MRRT revenue projections.[4]

MRRT-related expenses

In addition to the proposed reduction in the company tax to 29 per cent, a number of other measures originally linked to the RSPT were also changed between the 2010–11 Budget and this Budget. For example, the standard deduction for work-related expenses, originally planned for implementation from 1 July 2012, was deferred in November 2011 to commence from 1 July 2013.[5]

The net savings of $1.127 billion presented in the 2012–13 Budget relate only to changes since the November 2011 MYEFO. They come from abandoning some measures originally linked to the RSPT, and delaying others (table 2) .

Table 2: Savings and expense measures announced in the 2012–13 budget related to the MRRT

Measure

2011–12
($ million)

2012–13
($ million)

2013–14
($ million)

2014–15
($ million)

2015–16
($ million)

Total
($ million)

Company tax cut – do not proceed

50

317

1232

1596

1561

4756

Company loss carry‑back

 

-7

-155

-251

-301

-714

Increasing rate of FTB Part A

 

 

-603

-615

-626

-1844

Supplementary allowance

 

-153

-299

-306

-313

-1071

Total

50

157

175

424

321

1127

Source:  Australian Government, Budget strategy and outlook: budget paper no. 1: 2012–13, Commonwealth of Australia, Canberra, 2012, p. 1–18, viewed 10 May 2012.

A different way of looking at the net impact of expenditures linked to the MRRT is to examine the expected cost of each measure at announcement, including those that have been legislated, and the impact of the 2012–13 Budget proposals. Such a presentation provides a further picture of expenditure now linked to the MRRT and the accumulated savings of abandoning previously announced measures since their original announcement (table 3).

Net impact of MRRT revenue and linked expenses

For those three years where it is possible to determine the revenue and expenses for the MRRT and related measures, 2011–12, 2012–13 and 2013–14, the MRRT package provides an overall impact on the budget of -$43 million in 2011–12, +$2068 million in 2012–13 and -$619 million in 2013–14. While these results can be viewed as providing support for the implementation of the MRRT as a way of funding a range of worthy programs, unless MRRT revenue increases significantly in future years it will be difficult to cover expected future higher costs of some measures, such as the $3.6 billion costs in 2019–20 associated with the superannuation guarantee reaching 12 per cent.[6]

Of course there is no practical hypothecation of MRRT revenue to linked measures. While legislation that has been passed by the Parliament to implement some measures has been dependent on the successful passage of the MRRT legislation, future revenues and expenses are simply put through the Consolidated Fund.

MRRT revenues will be heavily dependent upon (Australian dollar) commodity prices. In particular, movements in exchange rates and world prices for iron ore and coal will be fundamental in determining the revenue raised by the MRRT. The revenue flows will be highly procyclical. That is, MRRT revenues will vary significantly with nominal GDP growth. In addition, the design features of the tax in terms of how mining profits and losses are defined and the deductibility of certain types of expenditures mean that there will be significant lags in MRRT collections in the event of significant rises or falls in commodity prices. This is similar to the way in which company tax revenues fluctuate with nominal GDP growth. In short, significant volatility will be a feature of the tax.

If we take the measures as being ‘tied’ to the MRRT, then the overall package of the measures’ impact on the Commonwealth Budget will depend on how the flow of MRRT revenue compares to the flows of expenditure and other revenues forgone over time. There are some risks here. The expenditures, which are relatively stable and expected to grow over time, will have to be paid even if the mining revenue falls.

Table 3: Impact of 2012–13 Budget on Minerals Resource Rent Tax-linked expenditures

Measure

2011–12

2012–13

2013–14

2014–15

2015–16

Company tax rate cut to 28 per cent and then revised to 29 per cent

 

Original cost adjusted for (a)

 

300

1400

Not available

Impact of 2012-13 Budget and intervening policy announcements

Reduced to nil

Reduced to nil

Reduced to nil

Reduced to nil

Reduced to nil

Early company tax rate cut for small business

 

Original cost (b)

50

100

50

Not available

Not available

Impact of 2012-13 Budget and intervening policy announcements

Reduced to nil

Reduced to nil

Reduced to nil

Reduced to nil

Reduced to nil

Superannuation guarantee increase from 9 per cent to 12 per cent

 

Original cost (c)

 

240

500

Not available

Impact of 2012-13 Budget and intervening policy announcements

 

Legislated – no impact

Legislated – no impact

Legislated – no impact

Raising the superannuation guarantee age limit from 70 to 75

 

Original cost (d)

 

-22

27

Not available

Impact of 2012-13 Budget and intervening policy announcements

 

Legislated – no impact

Legislated – no impact

Legislated – no impact

Low income government superannuation contribution

 

Original cost (e)

1

20

892

976

Not available

Impact of 2012-13 Budget and intervening policy announcements

 

Legislated – no impact

Legislated – no impact

Legislated – no impact

Higher superannuation caps for people aged 50 or more with a superannuation balance of less than $500 000

 

Original cost

 

545

785

Not available

Not available

Impact of 2012-13 Budget and intervening policy announcements

 

-580

-730

-130

-10

Instant asset write-off for small business ($5000 threshold)

 

Original cost (f)

 

1030

Not available

Not available

Impact of 2012-13 Budget and intervening policy announcements

 

Legislated – no impact

Legislated – no impact

Legislated – no impact

Standard work-related deduction

 

Original cost(g)

 

410

Not available

Not available

Impact of 2012-13 Budget and intervening policy announcements

 

Reduced to nil

Reduced to nil

Reduced to nil

Phasing down interest withholding tax on financial institutions

 

Original cost (h)

 

80

Not available

Impact of 2012-13 Budget and intervening policy announcements

 

Not yet legislated – no impact

Not yet legislated – no impact

50 per cent refund on tax paid on savings

 

Original cost (i)

 

470

480

Not available

Not available

Impact of 2012-13 Budget and intervening policy announcements

 

Reduced to nil

Reduced to nil

Reduced to nil

Reduced to nil

Regional Infrastructure Fund

 

Original cost

42

794

867

665

Impact of 2012-13 Budget and intervening policy announcements

No impact

No impact

No impact

No impact

No impact

Expanding the definition of exploration to include geothermal energy

 

Original cost

 

5

5

Impact of 2012-13 Budget and intervening policy announcements

No impact

No impact

No impact

No impact

No impact

Supplementary income support for low income earners

 

Original cost

Not applicable

Not applicable

Not applicable

Not applicable

Not applicable

Impact of 2012-13 Budget and intervening policy announcements

 

153

299

306

313

Increase in the rate of Family Tax Benefit A

 

Original cost

Not applicable

Not applicable

Not applicable

Not applicable

Not applicable

Impact of 2012-13 Budget and intervening policy announcements

 

603

615

626

Tax loss carry-back

 

Original cost

Not applicable

Not applicable

Not applicable

Not applicable

Not applicable

Impact of 2012-13 Budget and intervening policy announcements

 

150

250

300

Net expenditures

 

Original costs now avoided

50

570

1240

Not available

Not available

Original costs now implemented and 2012-13 Budget expenditure announcements

43

932

4119

Not available

Not available

Notes: Measures can be linked to the MRRT through a number of mechanisms, including the packaging of measures in the initial announcement of the RSPT and by subsequent announcements by Government members. Measures can also be linked to the MRRT if they were part of negotiations with non-Government parties and members in finalising the MRRT Bills for passage through the House of Representatives. The cost of measures does not include associated administrative costs that were allocated to agencies (a) Original cost as presented in the 2010–11 Budget and subsequently changed by the announcement on 2 July 2010 which changed the proposed cut to 29 per cent; (b) The early start for the small business company tax rate reduction to 28 per cent was amended to 29 per cent in the 2 July announcement. (c) Original estimates updated were updated in the Supplementary Explanatory Memorandum for the Bill to introduce the measure; (d) Original cost for this measure was to include increasing the age limit to 75. This was amended during the Bill’s passage through Parliament. Original costs were updated by Supplementary Explanatory Memorandum for the Bill and amended by the Revised Explanatory Memorandum; (e) Original cost estimates as provided in the 2010–11 Budget; (f) Cost of original proposal excluding the further increase to $6500 under the Clean Energy Future package; (g) Original cost amended in the November 2011 MYEFO by being deferred by 1 year; (h) Original proposal to commence from 2013-14 but deferred in November 2011 MYEFO to commence in 2014–15; (i) Original estimates updated by three subsequent policy changes until decision to abandon the proposal in the 2012–13 Budget.

Sources: Parliamentary Library estimates based on Australian Government, Budget measures: budget paper no. 2: 2010–11, Commonwealth of Australia, Canberra, 2010; Australian Government, Mid-Year Economic and Fiscal Outlook: 2010–11, Commonwealth of Australia, Canberra, 2010; Supplementary Explanatory Memorandum, viewed 10 May 2012; Superannuation Guarantee (Administration) Amendment Bill 2011, viewed 10 May 2012; Revised Explanatory Memorandum, Superannuation Guarantee (Administration) Amendment Bill 2011, viewed 10 May 2012; B Shorten (Minister for Financial Services and Superannuation), One-year deferral of interest withholding tax phase down, media release, 23 November 2011, viewed 9 May 2012; Australian Government, Economic statement July 2010, Commonwealth of Australia, Canberra, 2010, viewed 10 May 2012; Australian Government, Mid-Year Economic and Fiscal Outlook: 2011–12, Commonwealth of Australia, Canberra, 2011, viewed 10 May 2012; Australia Government, , Budget strategy and outlook: budget paper no. 1: 2012–13, Commonwealth of Australia, Canberra, 2012, p. 1–18, viewed 10 May 2012.



[1].       W Swan (Treasurer) and C Bowen (Minister for Financial Services, Superannuation and Corporate Law), Stronger, Fairer, Simpler Superannuation Banking the Benefits of the Boom, joint media release, 2 May 2010, viewed 9 May 2012; W Swan (Treasurer) and K Rudd (Prime Minister), Stronger, Fairer, Simpler: A Tax Plan for Our Future, joint media release, 2 May 2010.

[2].       G Gillard (Prime Minister), W Swan (Treasurer) and M Ferguson (Minister for Resources and Energy), Breakthrough Agreement with Industry on Improvements to Resources Taxation, joint media release, 2 July 2010, viewed 10 May 2012.

[3].       G Roberts, ‘Questions raised on reliability of tax’, Sydney Morning Herald, 8 May 2012, viewed 9 May 2012.

[4].       S Kompo-Harms and K Sanyal, ‘The Minerals Resource Rent Tax—Selected concepts and issues’, Parliamentary Library Background note, 24 November 2011, p. 18, viewed 9 May 2012.

[5].       Australian Government, Economic statement July 2010, Commonwealth of Australia, Canberra, 2010, p. 24, viewed 9 May 2012; Australian Government, Mid-Year Economic and Fiscal Outlook 2011–12, Commonwealth of Australia, Canberra, 2011, p. 170, viewed 9 May 2012.

[6].       Australian Government, Budget Measures, Budget Paper no.2, 2010–11, Commonwealth of Australia, Canberra, 11 May 2010, p. 42.

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