Will the redesigned tax put at risk investment in the industry that has played such a central role in Australia's growth?

It is a function of their business model that mining companies bear massive risks and costs associated with the exploration & investment required in new mining projects - and this new, complex tax will add another financial burden into the mix.  

Discussing the Mineral Resources Rent Tax (MRRT), Federal Treasurer Wayne Swan commented:

 "It's good to be here today with Martin to announce that the Government has accepted all 98 recommendations of the Policy Transition Group otherwise known as the Argus Committee. Now this agreement reflects the groundbreaking agreement that was made with the mining industry in July last year and it means that we will be able to deliver certainty, investment and jobs, but also, as importantly, a fair return to the Australian people for the resources that they own 100 per cent and to use the revenue from that to invest in building up superannuation, particularly for low paid for workers, and to reduce taxes, particularly for small businesses, but also to invest, particularly in Western Australia and Queensland, in the vital infrastructure that is required in those regions which are experiencing a mining boom."

The new MRRT is proposed to start as soon as possible. The tax will be based on profits remaining after a normal return on capital in the extraction of natural resources. The MRRT is expected operate in parallel with State and Territory royalty regimes and  the level of credits available for State-based royalties remains un-clear at this stage.

Petroleum projects already within the scope of the Petroleum Resource Rent Tax (PRRT) are in limbo despite Martin Ferguson saying, "Obviously from a petroleum point of view, it was about extending onshore the long established and accepted offshore system of resource taxation in Australia." Does this mean the PRRT will continue, or will it be scrapped, so that petroleum is brought within the MRRT?

Remembering the Resources Super Profits Tax shamble, the new tax has been complicated both in terms of its operation and its rationale.  Many hours of tax advisors' time and serious accounting advice will be required to bring mining and resources firms into line with the new regime. It is a whole new tax system - a whole new layer of intricacy and inevitably cost, that will be embedded into every aspect of the resources sector.  Those costs will filter down to individuals without doubt.

However, is the MRRT also out of touch with the market? Marginal producers who incur higher costs and therefore derive lower profit will be better off compared to those who operate their projects efficiently and who make real money. Shouldn't Australia be comparing its plans to the number of other countries already with profits based resource tax? These include Saudi Arabia, Russia and Canada, where a 20% tax rate applies to such profits.

The Government seems to believe resources companies have no alternative but to carry on development of their Australian projects (such as BHP Billiton's massive expansion at Olympic Dam). But it is obvious that resources companies will now be weighing up major investment opportunities in Australia with those available overseas. This will be especially evident for companies like BHP Billiton and Rio Tinto, who have access to a range of investment opportunities across the world. If the government increases the risk of Australian resources projects and reduces the ability to profit, Australian projects are just less likely to be pursued - something BHP Billiton indicated when the first version of this tax was introduced. 

Australians have enjoyed the benefits of the resources boom and have been looking forward to more economic spinoffs from the mining sector.

As it currently stands, the MRRT does not appear ‘fair' - it contains a high level of uncertainty and politicisation. Targeted at the sector that has become the bedrock of Australia's economy, this poses a major threat to our country's economic prosperity.

Robert Kavanagh

Senior Tax Manager

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