The threat of increased state royalties on top of the Australian Federal Government’s Minerals Resource Rent Tax (MRRT) looms large for the mining industry.
Cash-starved states appear ready to jump on the ‘mining tax bandwagon’ by increasing mining royalties and the Federal Government must do something to avoid the impending double whammy.
While the MRRT is a much better tax than the originally proposed Resources Super Profits Tax, the issue of state royalties must be ironed out as a priority.
South Australia (SA) has recently increased royalties from 3.5% to 5%, a move that has brought the ire of that state’s peak mining lobby group and one that will be watched closely by other states.
The SA Chamber of Mines and Energy (SACOME) says the current position of the Federal Government not to credit state royalty increases against the MRRT is a slap in the face for the state’s fledgling iron ore and coal industry which are now facing a ‘double tax’.
SACOME has written to Federal Minister for Resources Martin Ferguson arguing that the new mining royalty rate announced in the recent State Budget, should be credited as originally agreed under the Terms of Reference for the new MRRT.
It says that the Terms of Reference state that ‘all State and Territory royalties can be credited against MRRT’. However, in the Issues Paper released by the Policy Transition Group, it states that ‘State and Territory royalties will be creditable at least up to the amount imposed at the time of announcement, including scheduled increases and appropriate indexation factors’.
SACOME’s chief executive Jason Kuchel says, “It is our understanding that the Government’s position is that unscheduled royalty increases after May 2010 are not to be creditable against the MRRT. This is unsatisfactory and contrary to the Terms of Reference. It is clear that the Terms of Reference does not delineate between scheduled or unscheduled increases.”
With the increased royalties estimated to raise another $66 million over three years from the mining industry, he says, “it would be unjust and uncompetitive to hit the South Australian mining industry with a double tax.
“The SA Government was already reviewing royalty rates with a view to lifting them before the MRRT was announced.
“In discussions with the State Government, SACOME was left with the clear impression that it also understood that all royalties would be credited under the MRRT - and we now call on the SA Government to strongly lobby their Federal counterparts in this matter.”

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