Shock and “aw”: Miners win – Small biz pays

The Federal government has replaced its proposed super profits tax on the mining industry with a minerals resource rent tax.

The decision, announced jointly by Prime Minister Julia Gillard and her deputy Wayne Swan is a clear victory for miners, who bitterly opposed the proposed tax.

Ms Gillard will meet reporters in Canberra shortly, to explain the decision.

Meanwhile she and Mr Swan have issued a joint statement, which reads:-

“Today the Gillard Government is proud to announce a breakthrough agreement on improved resource tax arrangements that addresses the concerns of the resource industry.

The new tax arrangements will underpin major economic reforms that will strengthen our economy so we can move forward together with confidence.

These arrangements will fund an historic boost to superannuation, new and better infrastructure, and business tax cuts including an up-front tax break and less red tape for small businesses to help them grow and thrive.

This agreement provides certainty to the resources industry, to mining communities right around the country, and to the broader Australian economy.

It sends a very clear message to the world that the Australian resources sector is strong and its future is secure.

The breakthrough agreement keeps faith with our central goal from day one: to deliver a better return for the Australian people for the resources they own and which can only be dug up once. It is the result of intense consultation and negotiation with the resources industry.

The improved resource taxation reforms focus on the most profitable resources, raise the uplift factor for tax losses, remove refundability and offer generous depreciation arrangements to promote new investment.  They are more generous to industry in some respects, while industry has given ground in other areas. The improved profits-based taxation reforms will apply from 1 July 2012.

The improved resource tax reforms involve:

• a new Minerals Resource Rent Tax (MRRT) regime applying to iron ore and coal in Australia; and
• extending the current Petroleum Resource Rent Tax (PRRT) regime to all Australian onshore and offshore oil and gas projects, including the North West Shelf.  This will provide certainty for oil and gas projects and ensure all oil and gas projects are treated equitably.

The Government will focus the resource tax reforms on our biggest and most profitable commodities: iron ore, coal, oil and gas. These represent three-quarters of the value of our exports and resource operating profits and account for an even greater share of resource rents in the mining industry. They also represent the vast bulk of growth in the sector over the coming decades.

Since the beginning of the mining boom, prices for iron ore have increased by over 400 per cent and prices for black coal have increased over 200 per cent.

Other commodities will not be included, which reduces the number of affected companies from 2,500 to around 320. These commodities were not expected to pay significant amounts of resource rent tax, and excluding them will allow many companies to remain in their existing taxation regimes.

The agreement also provides certainty for projects in the emerging industry of converting coal seam gas to LNG, by including all Australian onshore and offshore oil and gas projects, including the North West Shelf, in the PRRT.

Including all oil and gas projects in the one regime will ensure equitable tax treatment between competing projects.

To ensure the smooth implementation of the new arrangements the Government is establishing a Policy Transition Group (PTG) led by Resources Minister Martin Ferguson AM and Mr Don Argus AC to consult with industry and advise the Government on the implementation of the new MRRT and PRRT arrangements.”

The two ministers also said:-

“The improved resource tax reforms are estimated to reduce revenue by $1.5 billion over the forward estimates. As the Government has always said, all elements of the tax reform package are dependent on the package being balanced by the revenues from resource taxation.

The reduced revenue makes necessary the following revisions to the associated reforms:

• The company tax rate will continue to be cut to 29 per cent from 2013-14 but will not be further reduced under current fiscal conditions. Small companies will benefit from an early cut to the company tax rate to 29 per cent from 2012-13.
• The resource exploration rebate will not be pursued.  Resource exploration costs will continue to be deductible in the normal way and the PTG will consider the best way to promote future exploration and ensure a pipeline of resource projects for future generations.

We believe these improved reforms offer the best chance of delivering for hard-working families and small businesses around Australia while protecting and growing our great mining industry.

All along, our objective has been to deliver Australians a better return for the resources they own, which can only be extracted once, and this plan will deliver on that commitment.

We came together as a nation to stare down the worst of the global recession and now we come together to reform our economy, improve our tax system, and move forward with confidence.”