Chapter 2
Views on the Bill
2.1
As noted in the previous chapter, the Bill would amend the MRRT Act so
that any increases in mining royalties levied by the states after 1 July 2011
would be disregarded when calculating royalty credits for the MRRT. This change
would apply to MRRT assessments from its first year of operation, namely 2012-13.
2.2
With the exception of a submission from Professor John Quiggin
(University of Queensland), no submissions received by the committee supported
the Bill.
Support for the Bill
2.3
Professor Quiggin noted that while minerals are the property of the
states in which they are located, 'under the system of fiscal equalization
implemented through the Grants Commission since 1933, the Commonwealth is
required to redistribute resources so as to ensure a starting position of
fiscal equality between states.' Professor Quiggin therefore argued in favour
of the Bill, contending that:
...a situation where the governments of mineral-rich states can
gain revenue at the expense of the Commonwealth, and therefore ultimately at
the expense of other states is antithetical to the principles of fiscal
equalization. Any such gains would ultimately be undone through the operations
of the Grants Commission. In the meantime, however, the effect would be to
compromise still further the operation of the MRRT, which remains more
efficient and equitable than royalties.[1]
Criticism of the Bill
2.4
Submissions from the New South Wales Government, Queensland Government, Association
of Mining and Exploration Companies (AMEC) and Minerals Council of Australia
(MCA) all argue that the Bill should be rejected.
Tax burden on liable entities
2.5
AMEC, while emphasising its opposition to the MRRT generally, argued
that 'the crediting of royalties is an essential feature of the overall
framework.' If this feature were removed, 'it will result in mining companies
paying double taxation through MRRT and royalties to the extent of the increase
above 1st July 2011 levels.'[2]
2.6
MCA, meanwhile, argued that the Bill runs counter to the policy
objective of limiting the overall tax burden on coal and iron ore mining
industries and providing greater taxpayer certainty:
Full crediting of royalties is a key feature of the MRRT's
design, one that ensures double taxation is avoided and that delivers a measure
of stability and predictability to the overall tax burden on coal and iron
projects, albeit at the upper end of globally competitive tax rates.[3]
2.7
MCA further suggests the Bill is based on a 'series of flawed premises',
including that the mining industry is not currently paying its fair share of
tax; that Australia 'can continually raise taxes on its most globalised
industry and not impact negatively on investment, jobs and economy-wide growth';
and that the volatility of MRRT revenues in response to changing market
conditions is a design flaw, rather than an essential design feature of the
MRRT.[4]
Previous agreements and assurances
2.8
AMEC points out that the 'freeze' on crediting royalties above 1 July
2011 levels was never contemplated in the Heads of Agreement between the
government and the large miners.[5]
2.9
While opposed to the MRRT itself, the Queensland Government suggests the
Bill would require the government to renege on the agreement struck with the
major mining companies, thereby further damaging Australia's 'reputation as an
investment destination.'[6]
2.10
The New South Wales Government also argued that the amendment would be
contrary to the recommendations of the PTG, which the Australian Government
accepted in full on 24 March 2011.[7]
Commonwealth-state revenue raising
and sharing arrangements
2.1
In its submission, AMEC argued that revenue sharing arrangements between
the Commonwealth and the states should be addressed through other processes,
such as the Commonwealth Grants Commission, and not through the MRRT
legislation as proposed in the Bill.[8]
2.11
AMEC also argued that the Bill would not reduce the incentive for states
to increase their royalty rates, 'as they will continue to do so to the extent
that industry may be able to bear it, with the result that miners will have no
option but to pay the royalty with no MRRT offset.'[9]
2.12
MCA argued that the Bill would take Australia further away from the Commonwealth-state
cooperation that is needed to create a stable and internationally competitive
regime of resource taxation:
The minerals industry considers that to the extent current
royalty crediting arrangements under the MRRT provide an incentive for States
to increase royalties, the only way this can be resolved is via constructive
dialogue involving all stakeholders (including industry) and, ultimately, via
an intergovernmental agreement that takes full account of the need for stable
and internationally competitive taxation and royalty arrangements.[10]
2.13
The Queensland Government, meanwhile, argued that the:
...best way to reduce the need for the resource States to
increase royalty rates is to ensure that resource States retain a fair share of
the government revenue from the commercial exploitation of their finite
resources. This outcome is easily achieved by guaranteeing resource states a
fairer share of revenue from the MRRT and reducing the punitive levels of
redistribution of mining royalty revenue effected through the Goods and
Services Tax (GST) distribution system.[11]
Retrospective application of the
Bill
2.14
Both the New South Wales Government and AMEC raised concerns regarding the
retrospective application of the Bill, which AMEC suggested would 'create a
dangerous precedent for taxation legislation in Australia.'[12]
Committee View
2.15
The committee notes that the government agreed to all of the Policy
Transition Group's recommendations on 24 March 2011, including '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 industry.' The committee believes the Bill is inconsistent
with this commitment by the government, and would introduce new uncertainty
regarding the taxation of the coal and iron ore mining industry.
Recommendation 1
2.16
The committee recommends that the Senate not pass the Bill.
Senator Mark
Bishop
Chair
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