Grylls tax a gold-plated gift for Brazil: MCA

New research released by the mining sector today suggests the impact of the WA Nationals' proposed $5 per tonne tax on iron ore production could be greater than originally anticipated.

The surcharge, which would apply only to majors Rio Tinto and BHP Billiton, would make the state’s tax regime on the steelmaking commodity the most punitive in the world, according to a report prepared for the Minerals Council of Australia and Chamber of Minerals and Energy by University of Calgary public policy fellow Jack Mintz.

Measured by marginal effective rate, which includes company income taxes, sales taxes on capital purchases, capital tax and royalties, the burden would be increased from around 37 per cent to 45 per cent.

That’s higher than even the highest taxing competitors, Colombia, South Africa and the US, and roughly double the marginal rate in Brazil, the world’s second largest iron ore exporter.

The numbers are based on an iron ore price of $70 per tonne, although as reported in Business News at the time of the announcement, the effective rate would increase as the iron ore prices falls.

“More importantly ... the effective ad valorem royalty rate would be pro-cyclical,” the report said.

“The lower the iron ore price, the higher the effective royalty rate.

“Any tonnage charge, can result in an effective tax or royalty rate to move directly against the movement in sales price and hence profit.

“It is bound to tax relatively more when the profit is low and hence exacerbate the economic cycle, creating more risk for the private producers.

“On the other hand, because of the unpredictable fluctuation in commodity prices, applying this unit-tax approach to tax commodity sales stabilises government revenues so long as production varies less, thereby shifting risk from the public to private sectors.

“But such revenue stability can be short-lived during a prolonged commodity downturn when miners with relatively high break-even costs are forced out of business, thereby negating stabilization benefits.”

Minerals Council chief executive Brendan Pearson said the tax would represent a gold-plated gift to Australia’s iron ore competitors, most notably Brazil.

“With iron ore accounting for 16 per cent of Australia’s export income, this tax would represent a massive self-inflicted wound on both the national and Western Australian economies,” he said.

Chamber of Minerals and Energy chief executive Reg Howard-Smith echoed the sentiment, saying it would make Western Australia the least attractive destination for iron ore investment in the world.

“It would undo, in one fell swoop, the efforts of successive Western Australian governments of both political persuasions to develop the great iron ore province of the Pilbara,” he said.