Thursday, May 06, 2010

So this idea of a super tax on mining profits... who raised it with the Henry Review?

You wouldn't think it

What the mining industry now says is "an unprecedented double-tax" that will hit workers, share-owners and small businesses, it once championed - in its submission the Henry Review.

The submission from the Minerals Council of Australia, dated November 2008, explicitly argued for a shift away from the existing complex system of more than 40 different state-based royalty charges to a national "profits-based" tax.

Quoting its own submission to a Ministerial Council on Mining as long ago as 2005 it said the new regime should be seen as "a return to a joint venture where the State brings the resources to the joint venture and the minerals company the expertise to convert it to a salable product".

It argued for a "sharing of the profits that arise from a saleable product," saying the government should "try to extract a share of the joint venture rents"...

By contrast at present no state had the same rate for the 42 minerals mined, with "the method of levying royalties for the same mineral differing across states, rates differing for the same mineral across states and in some cases rates differing for different mines extracting the same mineral in the same state."

It suggested the government use the proceeds of tax reform to cut the 30 per cent headline company tax rate and assist with the tax treatment of capital expenditures, also measures ticked off by the Henry Review and adopted by the government.

So sensible did the government find the Mineral's Council's suggestions that at a conference in 2009 the head of the Treasury's revenue group David Parker thanked it for "quite properly" pointing out that the best way to look at resource tax was as a "partnership or joint venture between private capital and community owned resources".

He showed the conference a graph showing that if 40 per cent excess profits tax had been in place instead of state royalties during the past decade the industry would have paid less between 2001 and 2004 and more between 2005 and 2008.

He even referred to it as a tax on "super profits."

So what went wrong? Why is the Minerals Council now opposing a change it sought?

One view is that the market changed. It became apparent that there would be many more good years than bad years in the decade ahead, making the switch to a an excess profits tax less than it seemed in 2008.

Another is that what the government now proposes is different to what the Minerals Council thought it would propose. The rate is the same, but it will apply to existing projects rather than "prospectively" to new ones only as the Council wanted.

Its submission spoke of the danger of "sovereign risk" if that happened, a contention David Parker derided at its conference observing that governments often made decisions that changed the tax treatment of existing businesses.

"I cannot recall anybody arguing that then existing investments should not have been able to access the reductions in the company tax rate in the early 2000s," he said.

Or it might be that what the Minerals Council and the government are really arguing about now is price, specifically the hurdle rate at which the super tax will apply. Like unions and employer groups fighting over wages they are talking as if the sky might fall in while calmly getting the best deal on the details.

Published in today's SMH and Age

Related Posts

. We'll still be mining

. Swan, Rudd and Tanner are stuffing things up big-time

. Commodity price boom heralds hike