Mining News

Mining Tax Wars from Australia

Posted by Alana Wilson on 6/28/2013 4:16:05 PM

By John L. Dobra i

In 2012 the Gillard government introduced mineral resource rent tax or MRRT in Australia which was applied to iron, coal and coal gas. Other minerals were exempted. A miner's MRRT liability is calculated as follows:

MRRT liability = MRRT rate x (Mining profit –Mining allowances)

The base MRRT rate is 30 per cent, but is reduced by an 'extraction factor' of 25 per cent, giving an effective rate of 22.5 percent and with various offsets the effective average rate is 8 percent. Mining profits under AUD$75 million were exempt from the MRRT and the rate was graduated from zero percent to 22.5 percent starting at profits of AUD$125 million.

At the time it was adopted the government projected that the MRRT would generate AUD$10.6 billion in revenue over a three year period, with BHP Billiton, Rio Tinto and Xstrata to account for 90 per cent of this revenue. Unfortunately, because of sagging prices, revenues from the MRRT have fallen far short of these projections. Current year (2013) revenue projections by the Gillard government were AUD$3 billion a year ago but have since been downgraded to AUD$800 million – a big difference.

All of this plays into a rambunctious Aussie political scene where former PM Kevin Rudd has toppled Gillard as head of the Labor party going into the campaign season ahead of this September’s election. Opposition leader Tony Abbott has vowed to scrap the MRRT and by some accounts is poised to unseat the Labor party in September.

Mining taxes and jobs are a big part of the political debate. The meltdown in metals and coal prices has been followed by significant lay-offs in the industry that are attracting the attention of the politicians. Still, the Greens, who were a big part of Gillard’s base, want taxes raised to make up the revenue shortfall and maintain that higher taxes will not close mines.

But, in fact, Aussie miners have been hit with a triple whammy: Falling prices, higher taxes, and a rising Aussie dollar have combined to create the perfect storm. All three of these factors squeeze profits by raising the cut-off grade for metal miners. This means they have to find higher grade ore to continue mining. If they can’t find the higher grade ore, they shut down. And, even if they do not shut down, there will be less ore to mine and the mine life will be shorter. It may also make the life of the Labor administration shorter.

iDirector, Natural Resouce Industry Institute and
Associate Professor of Economics
University of Nevada
Senior Fellow, Fraser Institute
Reno, NV 89557

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