08/06/2009 - 14:19

CME rejects federal resources tax plan

08/06/2009 - 14:19

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The Chamber of Minerals and Energy WA has backed the Barnett government's proposal to keep mining royalties under the control of the state and rejected plans for a federal resources tax.

CME rejects federal resources tax plan

The Chamber of Minerals and Energy WA has backed the Barnett government's proposal to keep mining royalties under the control of the state and rejected plans for a federal resources tax.

Treasurer Troy Buswell today lodged the state government's submission to federal Treasury Secretary Ken Henry's review of the national tax and transfer system.

"Our submission to the Henry Review reflects our very strong view that we need increased independence from the Federal Government for the long-term security of our income stream," Mr Buswell said.

"In a few years, the current regime will see us only getting back fifty cents in every dollar of GST we pay. This was never the intention of that tax reform.

"A much better outcome would be if States were responsible for their own tax income rather than the Commonwealth - at the moment Western Australia's economic success is penalised because it is used to subsidise other underperforming Australian States."

CME chief executive Reg Howard-Smith said suggestions the Rudd government may impose a federal resources tax in place of, or additional to, state royalties were of serious concern.

"Royalty rates are an important factor in making decisions about mining projects, including determining which States provide the best operating environment for new investments in resources projects," he said.

"A Federal resources tax could lead to a loss of state control of revenue leavers, reduced flexibility and a lack of incentive for State development."

He added the federal government does not have responsibility for land management and royalties are a rent for the use of resources in WA, not a tax.

"There is no guarantee future Federal Governments would redistribute proposed centralised royalty revenue in a fair way back to the States and Western Australia could be disadvantaged," Mr Howard-Smith said.

He added that while the CME supported the general principle of the Henry Tax Review, any concept that shifts the benefits derived from the state's resources sector out of WA should be rejected.

 

 

A sumary of the state government's recommendations to the review are below:

 

 

Recommendation 1

The Henry Review should examine the efficacy of the current zone rebate scheme, recognising the importance of the regions to Australia's economic wellbeing and that the attraction and retention of skilled and professional staff to these communities is critical for their future viability. Areas of focus should include options for restoring the value of the zone rebate, including:

(i) reinstating the value of the zone rebate to reflect the original amount adjusted for wage increases; and

(ii) developing a formula for indexing the fixed amount going forward to reflect cost of living pressures (and allow for low access to services).

Potential alternatives to the zone rebate for compensating people for living in regional areas (e.g. direct grants), consistent with an objective of the Henry Review to reduce the complexity of the tax/transfer system and make it more transparent.

Recommendation 2

Consistent with the Australian Government's recent attempts to promote greater capital investment in Australia by introducing temporary capital allowances, and to ensure that Australia's taxation regime remains competitive with other nations, the Henry Review (informed by research that it has commissioned in the area of capital income and business taxation) should examine:

(i) reintroducing accelerated depreciation in some form; or

(ii) entrenching capital allowances in Australia's taxation system.

Recommendation 3

The Commonwealth Government should implement its election commitment to introduce a flow-through shares scheme for smaller explorers, potentially as part of a broader flow-through taxation approach for small businesses which may be particularly disadvantaged in raising finance from traditional sources in the current environment.

Recommendation 4

Responsibility for mineral royalties should continue to rest with the States, to avoid exacerbating vertical fiscal imbalance (VFI) and the associated disincentives for States to support optimal resource development in the national interest.

Recommendation 5

The Commonwealth should share Petroleum Resource Rent Tax (PRRT) revenues with the adjacent jurisdiction, as a means of reducing VFI and the associated disincentives for States to support optimal resource development.

Recommendation 6

The Commonwealth should implement its election commitment to allocate a share of certain future PRRT revenues to a State infrastructure fund (via a National Partnership agreement).

Recommendation 7

Tax base sharing should be further examined as the potentially preferred model for reforming existing State taxes. In this regard, the research commissioned by the Henry Review should include a report on the merits of the Canadian provincial tax system compared to Australia's State tax system.

Recommendation 8

In the absence of tax base sharing reforms, motor vehicle duty should be flagged for future replacement by a State road user charge that takes into account 'externalities' such as congestion and environmental costs, as permitted by emerging technology and supported by appropriate social concessions.

Recommendation 9

The Commonwealth Government should lead major reform of the current GST sharing arrangements in Australia, with the objective of improving incentives for economic development, growing the size of the GST pool and reducing the current administrative overheads and lack of transparency.

Recommendation 10

Western Australia supports the commissioning of further research into tax transfer issues concerning fuel, roads, transport and the environment more generally.

 

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