The mining sector has generated enormous wealth over the last half a dozen
years. International commodity prices have surged. Profits in the mining sector
have jumped 262 per cent over the last decade. However, this wealth has been shared
unevenly through the economy.
It was against this background that in December 2009 the
review of Australia's Future Tax System recommended that the Australian government
introduce a uniform resource rent tax aimed at the above-normal profits being made
by the industry.
As resource rent taxes are based on profits, only the most
highly profitable mining operations will be taxed. They are more responsive to
changes in the industry than output-based royalties; as conditions change and
profits drop, so will the tax liability. Deductions built into the tax also
recognise the significant investments mining companies can make.
Illustrating this point, 20 years after the introduction of
the Petroleum Resource Rent Tax (PRRT) it is clear that investment in Australia's
offshore oil and gas sector has not been discouraged.
The Minerals Resource Rent Tax
The first version of a resource rent tax was the Resources
Super Profits Tax (RSPT), announced in May 2010. After extensive consultation
with the mining industry, the government ultimately pursued a revised
policy—the Minerals Resource Rent Tax (MRRT). As part of its reforms to
resource taxation arrangements, the government also intends to extend the
existing PRRT to all offshore and onshore petroleum projects.
The MRRT has many advantages over the RSPT in that it focuses
on the most profitable resources and significantly reduces the number of
companies that would be affected by the new taxation arrangements. The final
design of the MRRT is based on extended consultation with industry, including
the Heads of Agreement between the government and the three largest mining
companies—BHP Billiton, Rio Tinto and Xstrata. Importantly, this thorough
consultation means that the Minerals Council of Australia, the peak
organisation for the minerals exploration and mining industry, agrees that the
bills should be passed.
Sharing the benefits of the mining
The key policy intent underpinning the MRRT is that the
wider community should share in the above-normal profits being made from the
sale of their non-renewable mineral resources. To bring this about, the government
has announced a number of additional reforms as part of the MRRT package.
The MRRT bills include a number of measures aimed at
increasing the level of retirement savings of millions of Australians. Most
notably, employees will benefit from the mining boom through an increase in the
superannuation guarantee from 9 to 12 per cent. This is an important measure
which will not only help meet the challenges Australia will inevitably face
with an ageing population, but will address some inequality evident in the
system. The increase in the superannuation guarantee, and the low income
superannuation contribution also being introduced, will help ensure women,
whose superannuation balances on average lag behind those of male employees,
have a higher standard of living in retirement.
Of most advantage to businesses will be the government's
decision to cut the company tax rate from 30 to 29 per cent from 2013–14,
made possible by the revenue from the MRRT. Included in the MRRT package,
however, are other measures aimed at assisting small businesses. The increase
in the small business asset write-off threshold and simplified depreciation
arrangements proposed by the bills will offer direct assistance to small
businesses, many of which are subject to challenging operating conditions
within the two‑speed economy. Millions of small businesses could
potentially benefit from these changes.
These policies and programs linked to the MRRT will ensure
that long-term benefits from the mining boom are captured, without investment
and growth in the resource sector being threatened.
The committee, therefore, has recommended that the
legislative package introducing the MRRT should be passed.
During the inquiry, however, a number of specific issues
were raised which the committee wishes to comment on or respond to. The
committee's view on these issues, are summarised below.
The future of the mining industry
The committee has received evidence that, notwithstanding
some global challenges, the current outlook for investment in the sector is
strong; the ABS estimate that capital expenditure in mining will total
$87 billion in 2011–12, over 50 per cent higher than the level estimated
The committee has also heard claims that the introduction of
the MRRT will lead to a reduction in investment in Australia's mining sector.
It has received no solid evidence that this will be the case—only speculation.
The evidence available suggests that any reduction in investment is more likely
to be attributable to external economic factors than the MRRT.
Treasury's modelling of the MRRT
Treasury's modelling of the MRRT indicates that it will
raise $10.6 billion over the first three years of its operation. That modelling
is based on confidential information provided to it by industry participants
and Treasury's own modelling of growth projections for the industry and the
Modelling is not an exact science; the revenue from resource
taxes in particular is difficult to forecast as it is subject to many variables
such as international commodity prices, exchange rates and the level of
investment in the industry. Overall, the committee believes that Treasury's
modelling of the revenue generated by the MRRT should be accepted for the
information provided by the major industry players places it in
the best position to allow for expected changes to commodity prices and mining
Treasury is the body best placed to assess movements in the
exchange rate and developments in the economy generally;
attacks on its accuracy have not been convincing or undermined
its findings in any significant way; and
until the GST Distribution Review has completed its work, any
assessment of the effect of increases to state royalties is purely speculative.
Competitive neutrality and
discrimination against small miners
A number of small and emerging miners raised concerns that
the design of the MRRT did not reflect the principles of competitive neutrality
and contained inherent discrimination or inequity against smaller miners.
The committee carefully considered the concerns that were
raised. It noted that the low profit offset and simplified obligations have
been specifically incorporated to reduce administrative and compliance burdens
for small miners. While it is possible that the starting base allowance
provisions will give established miners significant deductions, it must be
remembered that the MRRT is a tax directed at profits. Failing to make
allowances for recent expenditure would render it a tax on past investment. The
committee notes that smaller miners will also be able to deduct the investments
Special issues relating to the magnetite industry have been
raised with the committee. While it seems likely magnetite producers will not
pay significant amounts of MRRT in the first few years of its operation, mining
for magnetite is, in essence, mining for iron ore, though in a different form.
Accordingly, the committee does not agree with the proposal for amendments to
the bills that would, in effect, give it a permanent exemption from the MRRT.
The committee recognises that while the recommendations for
changes to the MRRT made in submissions are from bodies with industry
experience, they are also unproven. Accordingly, in the committee's opinion the
most appropriate time to consider amendments to the operation of the MRRT is
after it has been in place for a number of years and the first MRRT returns
have been assessed, as recommended by the Policy Transition Group.
The committee is of the view that when this review takes
place, consideration should be given to particular aspects of the design of the
MRRT, including the low profit threshold; the operation of the simplified MRRT
and alternative valuation methods; and the compliance burden on small miners
arising from the MRRT.
Also in line with the recommendations of the Policy
Transition Group, the committee is of the opinion that a review of the
operation of the extended PRRT be undertaken after it has been in place for an
appropriate length of time. Such a review will help ensure the original policy
intent of the PRRT is still being met and that the different characteristics of
the offshore and onshore industry are accounted for.
The committee recommends that the Senate pass the:
Minerals Resource Rent Tax Bill 2011;
Minerals Resource Rent Tax (Consequential Amendments and
Transitional Provisions) Bill 2011;
Minerals Resource Rent Tax (Imposition—Customs) Bill 2011;
Minerals Resource Rent Tax (Imposition—Excise) Bill 2011;
Minerals Resource Rent Tax (Imposition—General) Bill 2011;
Petroleum Resource Rent Tax Assessment Amendment Bill 2011;
Petroleum Resource Rent Tax (Imposition—Customs) Bill 2011;
Petroleum Resource Rent Tax (Imposition—Excise) Bill 2011;
Petroleum Resource Rent Tax (Imposition—General) Bill 2011;
Superannuation Guarantee (Administration) Amendment Bill 2011;
Tax Laws Amendment (Stronger, Fairer, Simpler and Other Measures)
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