Dissenting Report by Senator Cameron
I do not agree with the Coalition senators’ conclusions and
recommendations in the majority report. The coalition senators have accepted,
with little scrutiny or critical analysis, the submissions of the Minerals Council
of Australia and mining companies. The Minerals Resource Rent Tax, with
appropriate amendments, has the potential to deliver over time an appropriate
return to the Australian taxpayer as a result of the exploitation of
Australia’s resources. The MRRT, no matter how high the rate, still only
applies in the event that the companies make a profit. Royalties do not give
any concession to loss-making firms.
To ensure that the national interest is protected and appropriate
returns for the exploitation of Australia’s finite resources are achieved, the
- Develop improved and consistent reporting procedures for mining
companies in relation to all aspects of their obligations under the Minerals
Resource Rent Tax;
- Undertake a detailed analysis of the sustainability and
suitability of various allowances including:
- Uplift Rates and the implications for government revenue of the
LTBR +7% standard;
- Assessing whether LTBR+7 % is an appropriate standard for the
mining loss allowance;
- Monitor the appropriateness of the 25 % deduction available under
the extraction factor;
- Develop appropriate responses to protect Commonwealth revenue and
the principle of horizontal fiscal equalisation when state governments impose
royalties in addition to the MRRT;
- Examining the revenue and social implications of allowing the
starting base to be calculated on the market value as distinct from the book
value noting the submissions from Professors Peter Carey and Neil Fargher that
“depreciating assets based on market valuation is not generally accepted
- Assessing whether the LTBR+7% and the basic principle and five
sub principles applying to the net back calculation are operating in the
The government should ensure that the national interest is prioritised
and appropriate amendments to allowances, if they are found to be overly
generous or unsustainable, should be made.
In response to questioning from Senator Bishop, Professor Fargher
expanded on his joint submission to the committee in relation to the question
of market valuation.
If the question is narrowed to simply comparing the two
start-up options available within the MRRT, then both the market value option
and the current book value option offer substantial start-up allowances. On
average, accounting rules are likely to result in book values understating
market value. Further, there is relatively greater flexibility in the
procedures used to estimate the market value. The self-assessor is expected to
take the higher deduction and so in my opinion is more likely to use the market
value option where tax liability needs to be minimised. Both current start-up
options however create substantial tax shields. 
I am unconvinced by the submissions of the Minerals Council of Australia
and individual miners that there are no downsides to the minerals boom and
flow-through benefits are available to all Australians.
I note the recent decision of the New South Wales Land and Environment
Court which casts doubt on the economic modelling used by Rio Tinto's Warkworth
mine to justify expansion of its Hunter Valley mining lease.
In the judgement, Justice Peterson said:
I accept Dr Denniss’ evidence that, to a considerable extent,
employment generated from the extension of the Warkworth mine would involve
currently employed skilled workers transferring from other industries, but the
vacancy thereby created in the other industries may not necessarily be filled.
I am not satisfied that the economic analysis provided on
behalf of Warkworth support the conclusions urged by both Warkworth and the
Minister, namely that the economic benefits of the project outweigh the
environmental, social and other costs. 
In my view the industry has consistently overstated the benefits it
confers on the country as a whole and understated the problems it creates.
Examples of this include:
- Rio Tinto including PAYG taxation for its employees in its
estimation of taxes paid by the company.
- The Minerals Council of Australia and mining companies including
royalties in the calculation of tax paid. In this context it is clear that
royalties are not taxes but payments for inputs to the company's operations.
Royalties should not be included in calculations of tax paid by mining
companies. This is being done to provide an impression that taxes are a greater
impost on the mining industry than they really are and the industry is paying
its "fair share".
- Using a figure of taxation paid since the start of the millennium
in an effort to provide a headline figure that creates an impression of the
industry paying its "fair share" without taking into account
profitability, the time-frame of the headline figure, and the industry's
contribution as a percentage of the total tax take in the economy.
- Overestimating and overstating the employment creation of the
industry by ignoring the crowding out of existing employment by the mining
boom, inflated Australian dollar and the drawing off of skilled workers from
existing industries to the mining industries. This has contributed to a
significant loss of employment in traditional industries such as manufacturing,
engineering, tourism and retail.
- The economic modelling that purports to show benefits assumes
that profit is retained and spent in Australia by Australians. In fact, that is
not the case given the substantial foreign ownership of mining at 83 per cent.
- The Australian Financial Review on Friday 3 May 2013 quotes
Treasurer Swan as saying mining companies account for about 30 per cent of
corporate gross operating profits but only around 15 per cent of corporate tax
- Mining is now about 10 per cent of the Australian economy by
value (but only about 2 per cent of employment). The industry claims to have
paid $130 billion in tax since the year 2000 (this figure that includes
royalties) however total tax receipts since then were $3,210 billion. So mining
tax is 4 per cent of the total tax collected at the Commonwealth level.
- In 2010-11 mining’s earnings before interest, tax, depreciation
and amortisation was $90.2 billion according to ABS figures. Tax office figures
show that the total company tax paid was $14.3 billion that year, a 16 tax
rate. They take advantage of various accelerated depreciation allowances etc.
- Miners are extremely profitable, last year BHP Billiton earned
profit of $15.5 billion, a 27 per cent return on its equity at the beginning of
- Claiming significant benefits to the Australian economy by
pointing to goods and services produced in Australia for the mining industry
while maintaining that they do not keep information on sector wide information
such as, goods and services sourced from overseas, job displacements in other
areas of the economy, the proportion of job vacancies filled in the minerals
sector by new entrants to the labour market, and the proportion of job
vacancies filled by employees who were unemployed immediately prior to their
employment in the sector.
The mining industry is the beneficiary of significant government
subsidisation. This is achieved through generous research and development tax
concessions, accelerated depreciation of mines and equipment, fuel tax
concessions and enormous infrastructure projects funded by state governments.
Some estimates put this as at least a $4 billion public subsidy to the mining
I note the view of Coalition Senators expressed in the majority report
that they are satisfied that the resources sector is “already 'paying its fair
share' through among other things, state royalties and that the MRRT “adds an
unnecessary, inefficient and ineffective burden” on the mining industry. I further
note the opinion of Coalition senators that resource taxation should remain
exclusively within the jurisdiction of the States.
Coalition senators must be about the only people in the country who
actually believe this.
It is almost universally accepted that it is in fact volumetric
state-based royalty payments for the extraction of mineral resources which are
the least efficient, least effective, most uncertain and least equitable form
of taxation on the industry.
The Minerals Council of Australia has consistently said that resource
rent taxes are preferable to royalties on grounds of efficiency and equity.
The Australia's Future Tax System review, headed by former
Treasury Secretary Ken Henry (AFTS review) found royalties to be an inefficient
and inequitable method of taxing the extraction of finite mineral resources.
The AFTS review concluded that Australia’s resource charging
arrangements were inadequate, both from an efficiency perspective, and in that
they “fail to collect an appropriate return for the community from allowing
private firms to exploit non-renewable resources”. 
The AFTS review recommended a fundamental overhaul of the way resource
revenue is collected, and who it is collected by. It called for the replacement
of all existing resource charging arrangements with a single, uniform resource
rent tax imposed and administered by the Commonwealth. One of the stated
reasons for this recommendation, as well as for the particular form of resource
rent tax preferred by the AFTS panel, was to remove the effect of existing
royalty and excise regimes, which it saw as distortionary and highly
inefficient, on investment and production decisions
The GST Distribution Review panel in its June 2012 interim report gave
unequivocal in principle support for the findings of the AFTS review. It said:
The Panel accepts the finding of the Australia’s Future Tax
System (AFTS) review that well-designed rent-based taxes are likely to be more
economically efficient than royalties applied on the basis of value or volume,
particularly in periods of low commodity prices or high costs.
The Panel also agrees with the AFTS review’s assessment and
States’ views that other factors, such as the size, variability and timing of
the return received by government, as well as relative administration and
compliance costs, are important considerations when evaluating any particular
resource charging regime.
The Panel is mindful of the depth of concern amongst States
regarding their historical role in charging for the right to mine under their
soils. However, the Commonwealth has a similarly well-established position in
the field of taxation. The challenge is therefore to find a way to reconcile
these two competing interests. 
Coalition senators' views on this are at odds with every reputable
review of resource taxation recently undertaken in this country.
The implementation of an appropriate Minerals Resource Rent Tax is
absolutely essential to ensure that the Australian public are properly
recompensed for the extraction of their finite, non-renewable resources
predominately by overseas owned mining companies.
Senator Doug Cameron
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