The federal government's own consultation group has thrown up a barrier to the hotly contested Minerals Resource Rent Tax, saying all state royalties should be credited to mining companies, in direct opposition to the goverment's stated position.
The federal government's own consultation group has thrown up a barrier to the hotly contested Minerals Resource Rent Tax, saying all state royalties should be credited to mining companies, in direct opposition to the goverment's stated position.
In its report released today, the consultation group said all current and future state and territory royalties should be credited against its the MRRT.
The recommendation, one of 94 proposed by the policy transition group (PTG), contradicts the government's stance to limit credits to only royalties existing at May 2, 2010.
The group said a full credit for royalties would provide certainty about the overall tax impost on the coal and iron ore industries.
"Equally, the MRRT should not be used as a mechanism to enable states and territories to increase inefficient royalties on MRRT taxable commodities," the group said in a report to government released today.
"The PTG also recommends the Australian, state and territory governments put in place arrangements to ensure that state and territory governments do not have an incentive to increase royalties on coal and iron ore."
Treasurer Wayne Swan welcomed the report, saying the government would now consider the recommendations and respond in early 2011.
"The report will also inform the preparation of exposure draft legislation by mid-2011, which will be subject to further consultation," he said.
The government welcomed a recommendation to establish an implementation group, comprising industry representatives, taxation experts and officers from the Department of Resources, Energy and Tourism, Treasury and the Australian Tax Office.
Among other recommendations, the PTG is "strongly" of the view that the ATO should be properly resourced to ensure effective implementation of the new tax arrangements.
It says it has also identified a number or administrative "irritations" being experienced in the existing Petroleum Resource Rent Tax (PRRT), which will expanded under the new tax proposals.
The group has made a number of recommendations that will have a fiscal impact, both positive and negative, including that liability under the MRRT should be phased in from the $50 million profit threshold.
"Some of the recommendations involve fiscal cost, while others involve fiscal gain," the report says.
Mr Swan has described the report as a "lot of commonsense", but refused to endorse or reject andy of its recommendations.
"But I can say this - there is a lot of commonsense in this report, a lot of commonsense in these recommendations," Mr Swan told reporters in Canberra.
Further conversations were needed with cabinet colleagues "first and foremost" but also with the resources sector and the states before the government responded formally to the report.
Mr Swan said any decision on the treatment of royalties would go through the usual cabinet processes.
"We've made the point all the way through this that we can't give a green light to the states to increase royalties endlessly," he said.
"Nobody wants to tilt the balance from a profit-based tax towards inefficient royalties.
"That wouldn't be in the interests of our country and it certainly wouldn't be in the interests of industry."
The policy transition group said the government needed to put in place arrangements to limit incentives for the states to increase royalties over time.
Resources Minister Martin Ferguson, the joint chair of the PTG with former BHP Billiton chairman Don Argus, said it would be wrong for any state or territory government to consider increasing royalties.
"The report also makes the point that from the minerals and resources sector's point of view the profits-based system is a more appropriate approach to minerals and petroleum taxation in Australia," he told reporters.
The latest survey of business investment showed mining companies were planning to invest $55 billion this financial year, Mr Ferguson said.
"We have now got certainty to enable further investment to actually continue in the future based on these recommendations.
"That is more than five times the level of mining investment being undertaken just six years ago before the boom took off."
Mr Swan said the government had persevered with the tax and in its discussions with the states would continue to do so.
"In terms of the states, we'll reach agreement with the states.
"I think we've indicated in the documentation that some of the states are currently planning increases in their royalties and that would be incorporated into our arrangements with the states.
"We will work through the issues with the states. That's what we intend to do."
