The Minerals Resource Rent Tax is on the receiving end of a nasty report in The Australian today:
BHP Billiton and Rio Tinto will be the only resource companies making payments of the new mining tax when the first instalment falls due on Monday, and they will be doing so out of a sense of obligation because of their role in designing the tax.
The payments will be based on the companies’ estimates of their full-year liability, which will be significantly less than the gross amount of more than $5 billion assumed in the May budget.
Company sources say the liability could have been calculated at zero, or even yielding a net credit, but the two resource giants felt beholden to make some payment since they had such a large role in brokering the deal over the tax.
Swiss-based mining giant Xstrata will not be making any payment. It was also in the room with BHP and Rio Tinto, when Julia Gillard, Wayne Swan and Resource Minister Martin Ferguson.
Crikey, what a debacle. Next to no tax take from the boom. And now a black hole:
…The May budget estimated that total resource taxation, including both the minerals tax and the petroleum resource rent tax, would raise $7.2 billion this year. The share from petroleum would be less than $2bn, with the minerals tax accounting for more than $5bn.
Because resource taxes are deductible from company tax, Treasury said the net contribution of the mining tax to this year’s budget bottom line would be $3bn.
The size of the price fall means the net amount could easily be less than half this amount; company tax will also be substantially lower.
Deutsche Bank resource analyst Paul Young said there were many unknowns in the calculation of MRRT liability.
“There are so many moving parts in this tax, and so many assumptions about company profits, carrying values and prices, it is near impossible to predict what instalments will be and what the future MRRT will be on an industry wide basis,” he said.
I am a supporter of the need for a resource rent tax. Yet this version is so opaque and poorly designed that it’s got to be scrapped. Abbott is right.
A new version should be built from scratch. The Saul Eslake version is so much better:
The resources super profits tax, as originally envisaged, was (among other things) impractical and relied on a commercially unrealistic assumption that financiers would believe a government promise to refund 40 per cent of the costs of failed mining ventures. But its replacement, the minerals resource rent tax, is arbitrary in its application to just two minerals (coal and iron ore); requires complicated procedures to establish the point at which those two minerals should be subject to the tax, and the value of them at that point; and (as we have just seen) leaves the revenue from the tax subject to being hijacked by state governments.
Surely a better and simpler way of procuring for the Australian people as a whole a larger share of the value created by the exploitation of the finite resources of which they are the ultimate owners would be for the federal government to legislate that, for as long as the prices of prescribed minerals are above some level (such as their average in 2004-05), the tax rate paid by mining companies will be, say, 33 per cent, while (for example) the tax rate paid by other companies will be, say, 27 per cent. (This would be a mirror image of the income tax exemption which used to apply to gold mining companies from 1933 – another concession to WA – until 1991.)
It might be necessary to apply some kind of grouping provision to prevent mining companies from diverting income into affiliated entities in order to avoid the higher rate of tax. But that would surely be simpler than the bureaucracy required to establish a brand-new tax – and probably less vulnerable to political criticism on that score as well.
