PERTH (miningweekly.com) – Australia's newly appointed Prime Minister, Julia Gillard, on Friday lifted mining spirits when she scrapped a proposed 40% tax on ‘super profits’ in favour of a mineral resources rent tax (MRRT).

The newly proposed MRRT at a rate of 30% would only apply to iron-ore and coal from July 2012, with all other mineral resources being exempt from the tax.

Also, small miners with profits below A$50-million a year would not have to pay the new tax.

The MRRT would extend the current petroleum resource rent tax (PRRT) regime to all Australian onshore and offshore oil and gas projects, including the North West Shelf.

Deputy Prime Minister and federal treasurer Wayne Swan said on Friday that the government had chosen to focus on these commodities as they represented three-quarters of the value of Australia’s exports and resource operating profits, and accounted for an even greater share of resource rents in the mining industry.

They also represented the vast bulk of growth in the sector over the coming decades. Since the beginning of the mining boom, prices for iron-ore have increased by over 400% and prices for black coal have increased over 200%.

“The improved resource taxation reforms focus on the most profitable resources, raise the uplift factor for tax losses, remove refundability and offer generous depreciation arrangements to promote new investment. They are more generous to industry in some respects, while industry has given ground in other areas,” Swan said.

The new tax arrangement will apply to the value of the resource, rather than the value added by the miner. It will do this by setting the taxing point at the mine gate where possible, and using appropriate pricing arrangements to ensure only the value of the resource is taxed.

It also recognise the preference of industry for more generous recognition of past investment, through a credit that recognises the market value of that investment written down over a period of up to 25 years.

For companies that prefer to use their current written down book values a generous accelerated depreciation over five years will be available.

The MRRT was introduced a day after negotiations with diversified miners BHP Billiton, Rio Tinto and Xstrata were concluded and comes only a week after Prime Minister Kevin Rudd, whose government proposed the 40% tax on super profits, was ousted.

Rudd’s super profits tax would have added A$12-billion to federal coffers.

Swan said that the improved resource tax reforms were estimated to reduce this revenue by A$1,5-billion over the forward estimates. This, in turn, would affect the government’s plans regarding reduced tax rates for small companies.

He said that the resource exploration rebate would not be pursued.

“We believe these improved reforms offer the best chance of delivering for hard-working families and small businesses around Australia while protecting and growing our great mining industry,” said Swan.

SWIFT RESPONSE

BHP Billiton, Rio Tinto and Xstrata all welcomed the government’s proposed changes to the tax regime, saying that satisfied the core principles that eluded Rudd’s tax, including ensuring that the new tax was not applied retrospectively so that existing projects were not adversely affected.

The MRRT also ensured a competitive tax rate that would not disadvantage Australia as an investment destination, the companies said.

“As we have previously stated, BHP Billiton believes that tax reform that is prospective, competitive, differentiated and resource-based will ensure that the Australian mining sector continues to grow through investment in the industry which benefits all Australians,” said BHP Billiton chief Marius Kloppers on Friday.

“We are encouraged that the MRRT design is closer to our frequently stated principles of sound tax reform, in that the proposed tax will be prospective in its treatment of profits from our iron-ore and coal businesses, and not apply to the other commodities in our portfolio.”

Rio Tinto MD for Australia, David Peever, said that the proposed MRRT was an improvement on the resources super profits tax, and added that the recognition of market value for existing mines and a reduction in the headline tax rate represented significant progress in achieving tax reform.

“We all want a minerals taxation system that grows the mining industry in Australia. A strong mining sector keeps the Australian economy strong, spreading prosperity to all Australians,” Peever said.

The Western Australian Chamber of Minerals and Energy (CME) said that while the proposed MRRT was a step in the right direction, the government now had to directly engage with small and mid-tier companies to provide greater certainty.

“From here, I think it is critical that a broader range of industry is negotiated with and is included in the discussions,” CME CEO Reg Howard-Smith told a press briefing in Perth.

“There is no doubt that we would have preferred smaller miners and midcaps to be included [in the discussions], but I think the package appeals to many of industry’s principles, and in that way, we welcome the package.”

"The package is also a win for all those many hundreds of businesses around Queensland that will continue to supply billions of dollars worth of goods and services to a healthy resources sector,” said Queensland Resources Council CEO Michael Roche.

Swan said that to ensure the smooth implementation of the new arrangements the government was establishing a policy transition group (PTG) led by Resources Minister Martin Ferguson and previous BHP Billiton chairperson Don Argus to consult with industry and advise the government on the implementation of the new MRRT and PRRT arrangements.

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