Chapter 1

Introduction and overview of the Bill

1.1        On 11 October 2012, the Senate referred the Minerals Resource Rent Tax Amendment (Protecting Revenue) Bill 2012 (the Bill) to the Economics Legislation Committee for inquiry and report by 29 November 2012. On 20 November 2012, the Senate extended the reporting date to 21 March 2013.

1.2        The Bill would amend the Mineral Resource Rent Tax Act 2012 (the MRRT Act) to change the interaction between the Mineral Resource Rent Tax (the MRRT) and mining royalties levied by the states. Specifically, the Bill would amend the MRRT Act so that any increases in state royalties since 1 July 2011 would be disregarded when calculating royalty credits for the MRRT.

1.3        The Explanatory Memorandum suggests the purpose of the Bill is 'to protect the revenue generated from the [MRRT] from being eroded by state governments increasing royalties.'[1]

Conduct of the inquiry

1.4        The committee advertised the inquiry on its website and in The Australian, and wrote directly to a range of individuals and organisations inviting written submissions.

1.5        Submissions were originally due on 31 October 2012. However, after the reporting date was extended to 21 March 2013, the committee wrote again to individuals and organisations with a request that submissions be provided by 30 January 2013.

1.6        Despite two calls for submissions, the committee only received six submissions, which are listed at Appendix 1.

Policy context and background to the Bill

1.7        The Bill is a Private Senator's Bill, introduced by Senator Milne on 12 September 2012.

1.8        In her second reading speech, Senator Milne argued that the MRRT, by promising to rebate the cost of all state mining royalties to the mining companies, effectively provided the states with a 'blank cheque' to raise royalties.[2]

1.9        Senator Milne further noted that Australia's Future Tax System Review (the Henry Review) had considered crediting companies for royalties paid. As Senator Milne notes, the Review had concluded that if this approach was taken then 'state royalty regimes would need to be fixed at a particular point in time to ensure that the Australian government does not automatically fund future increases in royalties.'[3]

1.10      According to Senator Milne, under the originally proposed Resource Super Profits Tax (RSPT) the refund would have been limited to royalties that existed at the time of the RSPT's announcement.[4] 

1.11      To be exact, under the proposed RSPT, resource entities would have received a refundable credit for state royalties paid, 'at least up to the amount of royalties imposed at the time of announcement, including scheduled increases and appropriate indexation factors.'[5]

1.12      Following negotiations with the mining industry and the deliberations of the Policy Transition Group (PTG), which was established to advise on the implementation and technical design elements of the MRRT, the government agreed to the PTG's recommendation 'that there be full crediting of all current and future State and Territory royalties under the MRRT so as to provide certainty about the overall tax impost on the coal and iron ore mining industries.'[6]

1.13      In her second reading speech, Senator Milne noted that the Western Australian, New South Wales and Tasmanian governments had already announced royalty increases, and the Queensland government had foreshadowed increases in its budget. According to Senator Milne:

...under the terms of its current policy the Gillard Government will have to refund these additional royalty payments to the companies paying them, which could reduce revenue from the MRRT by around a cumulative $10 billion by 2020.[7]

1.14      The Senate Economics Legislation Committee's report on the Mineral Resource Rent Tax Bill [Provisions] and related bills, tabled on 14 March 2012, recorded the committee's view that:

Moves by some states to increase royalties have the potential to undermine the superannuation and taxation reforms the MRRT is intended to support. The committee sees the announced increases as opportunistic, made in the knowledge that, long-term, the miners will be compensated for the increased royalties under the design of the MRRT.[8]

1.15      Senator Milne noted in her second reading speech that the government has indicated that it might cut grants to states that increase royalties from the July 2011 rate. Senator Milne suggested this approach 'may prove difficult,' and might be 'circumvented by the Commonwealth Grants Commission's principles of horizontal fiscal equalisation.'[9]   

Overview of the Bill

1.16      Item 2 to Schedule 1 of the Bill would amend section 60-25 of the MRRT Act so that any increases in royalties levied by the states after 1 July 2011 would be disregarded when calculating royalty credits for the MRRT. Item 3 provides that this change would apply to MRRT assessments from the first year of its operation, namely 2012-13. 

1.17      The amendments in the Bill would commence on the day it receives the Royal Assent.

Senate Standing Committee for the Scrutiny of Bills

1.18      In its Alert Digest No. 11 of 2012, the Senate Standing Committee for the Scrutiny of Bills noted that given the amendments in the Bill would apply from the first year of the operation of the tax, that is 2012-13, it may be considered to have a retrospective application. This may be considered to 'trespass unduly on personal rights and liberties, in breach of principle 1(a)(i) of the Committee's terms of reference.' Therefore, the Senate Standing Committee for the Scrutiny of Bills seeks Senator Milne's advice as to why the retrospective application of the Bill is considered necessary.[10]

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