In my blog of June 3 “the Miners Lament”, I pointed out that the large foreign owned mining companies in Australia may yet regret that they rejected out of hand the Resources Super Profits Tax that the Rudd Government proposed. Politically of course the miners will never admit it but I suspect that at some point the wiser heads amongst them will look again at a tax arrangement based on profit performance rather than royalty taxes that the States are now increasingly levying.
This article is a repost from 17.10.2013.
This is not to say that the Rudd Government’s proposal was well handled. It was not. In particular the Rudd Government failed to involve the state governments whose budgets depend heavily on mining royalties. I pointed out in my blog, and quoting from a GST Distribution Review Report 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.’
With the slow-down in the mining boom, and with lower commodity prices, states such as Queensland and Western Australia will look increasingly to mining royalties to help their difficult budgetary positions.
A clear trend is now apparent. The mining royalties of all the states have increased five-fold from about $2 billion in the early 2000s. And it is continuing. It is estimated that from October 2012 coal royalties in Queensland will raise an additional $1.6 billion over four years. The WA government has lifted iron ore royalties by about 14% since July 2013. This is expected to raise an additional $2 billion over three years, It is already clear that WA it will need to look to more mining royalties and other income to underpin its budget. The Barnett Government is showing signs of financial and political difficulty.
A feature of these increases in royalties is that they are deducted from the Minerals Resources Rent Tax. This tax has raised much less for the Commonwealth government than expected. But in the political argy-bargy over Commonwealth mining taxes, the states have seized the opportunity to substantially increase mining royalties.
Some miners at least must surely be wondering whether they took the right course in opposing the Resources Super Profits tax in which taxes are levied on the profitability of the enterprise rather than royalties that are based on the value of the output. Higher state mining royalties, lower commodity prices and higher costs will inevitably put the squeeze on the mining companies. It will then be quite delicious to see them urging a tax based on profits/losses rather than royalties.
But not only are the miners likely to be found short-sighted. The business community also seems similarly afflicted. As part of the Resources Super Profits Tax it was proposed that the company tax rate be reduced by 2% as part of the package. But the miners complained long and hard, and defeated the RSPT. They effectively side-lined the business sector which lost its corporate tax reduction. This doesn’t sound to me as if the business sector was looking after the interests of its members. The Business Council of Australian in particular was so inclined to barrack for Tony Abbott that it forgot to look after the interests of Australian companies.
And what about Twiggy? In my blog of June 5, 2013, ‘How about it Gina and Twiggy?’ I urged them both to fund scholarships similar to the Rhodes scholarships to give Australians living and studying opportunities in Asia as well as at Oxford.
Lo and behold Twiggy Forrest has just announced that he and his wife will sell down some of their shares in Fortescue Metal Group to fund a $65 million donation for research at Western Australian universities. This funding is not specifically for study in Asia, but it is a start.
However a reservation which I share with many Australians is the lack of corporate tax paid by FMG. Mr Marcus Hughes, the tax manager for FMG told a Commonwealth Parliamentary Committee on November 9, 2011, that FMG had not paid any corporate tax for seven years. The BRW Rich List reveals that the net worth of Andrew and Nicola Forrest is $3.66 billion. $65 million is a generous gift and sets a good precedent but we need to hear more about corporate taxes paid by FMG since its inception. Something does not seem right.
PS…On December 15 in the AFR Bryce Corbett wrote ‘According to the (ATO) documents…Andrew ‘Twiggy’ Forrest’s Fortescue Metals generated $9.1 billion in sales in 2014-15 for a taxable income of $208 million on which he paid just $13.2 million. Twiggy! Who’s your accountant? And what is his number?…FMG paid less tax than the Warrnambull cheese shop?’ ( John Menadue 23 May 2017)