States dig in against Canberra's mining tax Sarah-Jane Tasker From: The Australian January 23, 2010 12:00AM
CANBERRA faces a united front from the nation's boom mining states and the resources industry if it moves to scrap the state-based royalty system in favour of a new national tax to reap billions from the sector.
The Henry tax review, now in the hands of the federal government, is expected to have recommended a new project-based federal resources rent tax of 40 per cent, which will be based on the petroleum resource rent tax. The major mining companies yesterday declined to comment on the proposal, saying they would wait for the government's response to the review, due within months.
But insiders told The Weekend Australian it represented a"real threat" to the sector and would be opposed by the states.
It has been reported that if the petroleum tax system had been applied to the nation's major miners and top commodity exports over the past three years, it would have raised an extra $14 billion from the sector.
Aggressive opposition to the anticipated proposal is gaining momentum, with the key mining states of Western Australia and Queensland agreeing they would vehemently argue against any transfer of taxing responsibility to the federal government.
In their submissions to the tax review, both state governments appeared to be open to debating alternative methods to taxing the resource sector but were firmly of the view that the right to do so should remain with the state.
West Australian Liberal Treasurer Troy Buswell told The Weekend Australian yesterday that he would vigorously oppose any moves by the commonwealth to kill the state-based royalty system.
"Our experience with the way GST monies have been distributed back to the states is that any centralisation for what is a major state-based revenue stream for us will have significant negative long-run consequences," he said.
"It further undermines the financial independence of the states and further undermines the flexibility and freedom of the people of Western Australia to invest those royalty incomes in a way they see appropriate." He said 12 per cent of Western Australia's revenue came from royalties, which is said to be about $2.6bn this year.
"If we as a state are forced to go cap in hand to Canberra to get that money back, that is not an acceptable outcome," he said.
Queensland Labor Treasurer Andrew Fraser has also previously stated he strongly opposes any move to abolish the state scheme. His spokesman refused to comment yesterday.
Australian Minerals Council chief executive Mitch Hooke is "vehemently opposed" to a tax grab under the guise of reform and is concerned the industry will be hit with a double tax.
"Government policy that adds to the total cost-base of business, constrains productivity and increases sovereign risk, undermines the integrity of our industry, compromising investment and growth," Mr Hooke said.
Recommendations from the review of Australia's tax system, led by Treasury Secretary Ken Henry, were given late last month to Wayne Swan.
Concerns about the tax reforms hit the major miners' stocks in London overnight Friday and on the local market yesterday.
BHP Billiton fell 2.3 per cent to $41.70 and Rio Tinto declined 3.5 per cent to $72.94.
ANZ senior commodities analyst Mark Pervan said the market had reacted to not only the tax speculation but also concerns about cooling initiatives in China.
"What you are seeing in the mining sector is a reaction to this news but it is around a lot of uncertainty," he said.
The proposed new resources rent tax would not be levied until all of the exploration and development costs associated with a project had been paid, and would be levied only in years when the project made a profit.
It would be similar to the resources rent tax that applies to petroleum exploration in offshore waters, which was introduced in 1986 and takes 40 per cent of profits.
Mr Pervan said a new resources rent tax could lead to a drop in potential projects coming on-stream. "It could have a negative impact on government revenues if it was to slow resource revenue," he said.
"It works OK in the petroleum industry because the profits in that sector are a lot larger than in the mining sector."
The wider industry is said to also be alarmed at the suggestion that if the state-based schemes remain, a new national tax will still be applied, effectively "double dipping" into the sector.
Mr Buswell said there was a real risk to the mining sector that there could be an impasse between the commonwealth and the states, which would see the industry penalised.
"We look to our sector in Western Australia to provide the foundation funds for the nation's economic recovery," he said. "To threaten that with excessive taxation is lunacy."
