John Menadue. The miners may have been better off with a super profits tax.

Apr 9, 2015

As a result of the lower iron ore prices there is a dramatic shake-up coming amongst our iron ore companies, the largest of which are foreign owned.

These companies conducted a vociferous campaign against the Resources Super Profits Tax. They were successful. As a result of the failures of the Rudd and Gillard Governments to effectively tax the mining companies, the state governments particularly of Western Australia and Queensland stepped in with very large increases in royalties. The Western Australian Government could hardly have believed its good luck in the royalties it extracted from the iron ore companies in Western Australia as a result of the China export boom.

But that has now all changed. The mining companies are stuck with these very high royalties whilst their profits have been reduced or eliminated. There is not much doubt that companies such as Fortescue would be now much better served if there had been a Resources Super Profits Tax rather than the large increases in state royalties that they continue to pay. Professor Flavio Menezes, Professor of Economics at the University of Queensland, said in The Conversation on 7 April 2015 ‘Fortescue Metal Group’s Andrew “Twiggy” Forrest was one of the most vocal opponents of the super profits tax. Fortescue’s financial position is currently under significant pressure due to falling iron ore prices caused by oversupply, and the slowing Chinese economy. Ironically, it would likely be better off today under a well-designed RSPT than under a royalties regime.’

In my blog of 17 October 2013, I pointed out the short-sightedness of the miners and the likely problems that they might face as a result of reduced profits and increased state royalties. See link below. 

I drew attention in that blog to the report of the GST Distribution Review of October 2012 that ‘Well designed rent-based taxes are likely to be more economically efficient than royalties, particularly in periods of low commodity prices or high costs. … Other factors, such as the size, variability and timing of the return received by government, as well as administration and compliance costs are also important considerations when choosing between alternative resource charging regimes.’

Guest blogger, Dr Michael Keating in a post ‘The mining tax debacle’ of 14 September 2014, commented that what was surprising is that the Labor Government did not elect to just extend to all minerals the existing Petroleum Resource Rent Tax (PRRT) which also had a 40% tax rate. This would have been much easier to explain and as acknowledged by the Henry Review, the PRRT can approximate the impact of the Resources Super Profits Tax.  See following link to Michael Keating’s post.

An appropriate mining tax regime is still a matter than needs addressing in Australia. The efforts of the Rudd and Gillard Governments were clearly in the right direction, but very badly managed. The miners took advantage of their lobbying power. Their action seemed to be of great benefit to them at the time, but many miners now and in the future will pay a heavy price for a failure to set up an appropriate taxation regime for miners in Australia.

The miners are very likely to lament their action in destroying the Resources Super Profits Tax which was levied on profits. In its place, they have been levied with very high royalties by state governments which do not have a direct relationship to profits.


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