13/05/2009 - 13:10

Little for explorers in federal budget

13/05/2009 - 13:10

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There was little for resource explorers in the federal budget last night, with a lobby group saying the government missed an "excellent opportunity" to introduce an exploration incentive scheme which was a key election promise.

Little for explorers in federal budget

There was little for resource explorers in the federal budget last night, with a lobby group saying the government missed an "excellent opportunity" to introduce an exploration incentive scheme which was a key election promise.

The Association of Mining and Exploration Companies expressed disappointment today of the Rudd government's failure to introduce a flow through shares (FTS) scheme, which it claims would provide a short-term boost to the domestic economy.

The nation's resource sector is advocating a FTS scheme where junior Australian exploration companies exploring in the country are able to pass unusable tax deductions on to Australian shareholders.

The Exploration Tax Credits (ETC) would then be available to shareholders at the Australian company tax rate of 30 per cent. Eligible shareholders would be entitled to use their ETCs to offset tax liabilities.

While AMEC welcomed the federal government's decision to invest significantly in the country's infrastructure, it was "deeply disappointed" of the decision to delay the FTS scheme yet again.

"FTS will deliver both immediate and long term benefits to every Australian, at a relatively low cost to Government," AMEC chief executive Simon Bennison said.

"Allowing companies that are not yet in profit to pass on their unused tax credits to investors will provide a much needed boost to investor confidence.

"As investment in the sector improves, companies will be willing to spend more of their cash reserves on new projects. That will, in turn, create immediate employment as well as generate a long term pipeline of royalties for the benefit of all Australians for generations to come.

"However, the Government has chosen to bind its pre-election commitment in the red tape of the Henry tax review, practically guaranteeing that it will not be delivered in this term of Government.

"The Government's decision to not deliver FTS last night will amount to a broken election promise unless the Prime Minister intervenes and implements his commitment immediately.

"This lack of action is very disappointing and represents a missed opportunity to genuinely improve Australia's immediate and long-term economic, social and employment benefits."

A study into the implementation of a FTS scheme was released last week and found that more than 4,100 jobs would be created and a further $114 million added to the gross domestic product between fiscal 2010 and 2013.

Meanwhile, Ernst & Young have called the government's enhancement of the research and development tax concession "cold comfort" for the mining sector.

Under the R&D Tax credit firms with $20 million or less turnover will receive a 45 per cent refund of their R&D spending when they file their tax return.

Foreign-owned firms and companies turning over more than $20 million will be eligible for a 40 per cent tax credit.

Ernst & Young global mining and metals sector leader Mike Elliot said the credit has serious limitations which will limit its effectiveness.

"First of all you have to have cash to be able to spend the cash to get a cash refund out of it, and secondly as this doesn't really apply until 2011, how many of the current explorers are going to be still surviving at that point in time unless they've got access to cash," Mr Elliott said.

"The point that we're saying at the moment is, particularly for explorers, is what do they need at the moment?

"They need cash, they need capital, they've all reined in their [spending], they're doing very little exploration activity currently and they're all just trying to survive.

"If we're really going to look at a boost in exploration then we're really going to have to see some new capital being invested in the sector."

While the credit could provide benefit junior explorers, Mr Elliott said companies who do not have available cash for research and development will not receive the refund.

Mr Elliott also said many exploration companies already struggling to raise extra capital will fail to do so by the scheme's launch in 2011, and won't be eligible for the concession.

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