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Bravo, Stephen; an excellent summary of the facts that have eluded pretty much everyone else, and especially the government! (Some premier factors undermining the MRRT, February 12.)
Thanks Stephen, an excellent overview as always (The premier factors undermining the MRRT, February 12). I guess this tax is a bit like a call option - exposure to any upside and not much lost on the downside if there's no profit. Perhaps though some of the miners might have more profit to tax if it hadn't been squandered on terrible offshore deals like Alcan and Riverside (Rio) and US shale gas (BHP). It's a bit rich for them to lecture governments of any persuasion - Federal, State, Liberal / Labor etc - about the virtues of prudent financial management.
Stephen, I think you and many people are mistakenly incorrect on the merits of the current volume based state mining royalty regime and how it practically operates, as well as some of the shortcomings inherent with the profit based resource taxes (The premier factors undermining the MRRT, February 12).
The current state volume based royalty regime is actually not as rigid as you people think it is and it can be changed to suit the actual situation with particular mines, e.g. no royalty or reduced royalty paid in the first number of years of producing minerals and in the late stage where costs are higher.
More importantly, volume based royalty reflects the estimated value of owning the minerals, as opposed to the profit sharing situation under the profit based resources taxes.
To sharpening the point, if companies are so inefficient that they would not produce any profits even though efficient companies would produce, one would have a situation that the value of owning the minerals would be becoming 0.
Further, more efficient firms would be taxed more heavily than less efficient firms in terms of the same minerals, simply because the former generate more profits than the latter do.
Is that fair to the owners or minerals or mining companies?
Henry and Treasury people were either naively mistaken or deliberately misleading on this issue on the relative merits of the two regimes.
Other people including many economists and business commentators have been simply too lazy to use their own brain and as a result fallen into the same trap.
So, let's all have a cold shower and have a realistic analysis of the two royalty regimes and not simply ignore the reality and be mistaken hypothesis as actual outcomes.
A very unbiased and again a very precise description. Probably the best I have read on the matter baring in mind your previous one on the subject was good too.
(Some premier factors undermining the MRRT, February 12.)
"the retrospective nature of the RSPT [i.e. it applies to existing mines] effectively meant that the government would have expropriated 40 per cent of the value they had invested in and created over decades under very different taxation regimes." (The premier factors undermining the MRRT, February 12).
You correctly identify this as the critical issue, but it is a matter of perspective. From the point of view of a government that represents the interests of all Australians, this would not be an "expropriation" but rather a "re-appropriation" of super-profits on resources owned by Australians, not the miners, which the miners have been making at our expense.
Of course, the big end of mining town would have a very different view, and one which ultimately prevailed. Miners continue to make super profits (i.e. returns far in excess of the exploration, extraction and marketing services they provide us as owners of the resources) at the expense of all Australians.
I agree with Lincoln's point on the profitability of the miner (The premier factors undermining the MRRT, February 12). If a miner wants to extract resources and sell them for a profit then they have to pay the taxpayer's of the relevant state (i.e. the owners) for that product. There is nothing wrong with the royalty system. The royalty cost is simply a cost of production for the miner.
Thank you Stephen, finally a report and an analysis that makes sense, and not the usual 'he said - she said' reporting without a precise description of problems and possible solutions (Some premier factors undermining the MRRT, February 12.)
Tony, yes resources belong to the States, anyone touching these and rubishing the constitution should have been crucified in parliament a long time ago, unfortunately our Canberrist legalmentarians have less strategic planning and decision making skills than six years old children.
(The premier factors undermining the MRRT, February 12).
Hi Stephen
Excellent article (The premier factors undermining the MRRT, February 12). Just a question to you and your readers:
Does this statement (paragraph 2) make you uneasy living in a democracy:
" it was quite clear that there were some non-negotiables on the mining side."
I run 3 businesses and have never thought it possible that I could have a non-negotiable stance with government or regulators e.g. The ATO. You have accurately summed up the miners position here as being above the sovereign government of the day.
Also the only in accuracy I can spot in the article is the statement :
"Julia Gillard had deposed Kevin Rudd as prime minister"
The miners in fact deposed the elected prime minister of the day (within a few short weeks of the tax being announced).
Does anyone else see this as the real concern for our nation to come out of this whole MRRT debate or is it only me?
Once again an excellent article clarifying the facts of the MRRT.
Another bravo for an excellent summary (The premier factors undermining the MRRT, February 12).
In addition, your point that the RSPT was a defacto expropriation of an asset already sold to the miner by the State under the original mining lease is right but if accepted why couldnt the Federal government do the same over the other big asset the state sells to private interests - land. why not by Swann's logic tax the "rent" on coastal property acquired at rural prices a decades ago? a Real Estate Super Profits Tax. Why would not by Swann's logic the EU not declare resources a European asset and impose a RSPT on Britain's North Sea Oil.
Finally the MRRT is inherently volatile and therefore a very unstable base for ongoing expenditure and prudently should be simply saved. Should the Government not try to hedge its commodity price risk as any fund manager might? How one might ask? Steel makers (even our own Bluescope and One Steel)may be interested to hedge their iron ore and coal price risk. the miners themselves might do that but the MRRT disallows it.
Another way for the government to hedge the risk is to charge fixed rather than floating i.e an upfront amount (as done by the very efficient process of auctioning of petroleum leases or spectrum) or a volume charge. The future price risk is then all the miner's and we are back to where this started.
Great job Stephen!! (The premier factors undermining the MRRT, February 12.)
Do I detect a little bit of the anarchronist in Nick Austin in that he harks back to Stalin's Soviet Russia rules and neglects our Prime Minister's out an out blatant lie to persuade voters, that "there will be no carbon tax in a government that I lead". Surely this is the most disgraceful lie that a politician can foist onto an electorate in a democracy.
That you don't mention this in your comment Nick is very worrying!!
What a pack of liars the Gillard Govt. are! Trying to disseminate falsehoods by critisisng the State Royalties tax.
We need to get on to the misinformed media!! The easiest system is the Royalty system - stuff the tax system, employs zillions of beaurocrats at great cost - if you export a tonne of coal, iron ore or Gold you pay "x" $ - simple and fair (The premier factors undermining the MRRT, February 12).
As we all know there can be some very creative corporate accounting.
To all the busy bees praising labour on Taxes and fighting Royalties, please come here and take a family photo beside Mr McGowan, and pass it to all WA medias before the State election in March. (The premier factors undermining the MRRT, February 12.)
My neighbour works in Kununurra, through my windows I can see 2 trucks three companies and six to 12 workers building his new two storeys home for his family, by now it is easy to guess who we will be voting for and the advertising campaign we hope that will comeback unless some faces really change in the labour party starting by the Ultra socialist hoot nannies.
I think this article is one of the more informed and informative I've read (The premier factors undermining the MRRT, February 12).
Referring though to this paragraph
"It is a deal with the states – and the government can try to use the distribution of GST and other revenues as either a carrot or stick to convince them to play ball – that the government, Oakeshott and the Greens need to pursue, not changes to the MRRT itself"
Isn't the carrot and stick already in place by default? The objective of the Commonwealth Grants Commission for Horizontal Fiscal Equalisation means that the more a state raises in revenue the less need they have for GST funds. It also takes into account other federal grants. This is why WA's relativity has dropped to just 68% in 10-11 as against more than 100% in 06-07.
So a state raises more in royalties by upping the rate and without any need for deals or negotiations they get less GST. The impact of any special grants from the federal grants is also part of the mix, so more GST for the non royalty raising states the less need for government grants to them.
What therefore is the big issue with the system the way it is now? Overall government revenue is around the same, just that more of it is ending up with the states directly. I guess it may be an issue if your goal is to take credit for spending the money but for the "public interest" where is the big gain?
I guess if WA and Qld want the HFE system ammended they may have to reconsider their views on upping royalty rates. That's a negotiation that I'm sure will happen in due course.
With the states as the owners of the minerals the federal government should not be implementing a tax that impedes those states charging the level of royalties that they want to. Additionally why do the non-resource states like Tasmania think that they should benefit from the resources that reside in states like Queensland and Western Australia (The premier factors undermining the MRRT, February 12).
The whole tax was ill conceived and the budget is now going to take a hit from the promised spending now the kitty is empty.