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Taxes making mining uncompetitive - report

10th October 2022

By: Esmarie Iannucci

Creamer Media Senior Deputy Editor: Australasia

     

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PERTH (miningweekly.com) – A new study by the Minerals Council of Australia (MCA) have shown that uncompetitive tax rates have already dragged Australia’s investment effort over the past seven years, hampering productivity and wages growth.

The report, written by the University of Calgary’s Philip Bazel and Jack Mintz, underlines that at 30% Australia had the third highest company income tax rate of OECD countries in 2021, slightly below Portugal and Japan, and tied with Germany and Mexico, and well above the OECD gross domestic product- (GDP-) weighted average of 26.3%.

Australia also has the third highest effective tax rate on marginal investments once accounting for differences in company tax writeoffs and other taxes on capital investment, such as stamp duties, real estate transfer taxes and capital levies.

Australia’s effective tax rate on marginal investments is 28.1%, three points higher than the G20 GDP-weighted average of 25.1% and almost four points higher than the OECD GDP-weighted average of 23.8%.

Australian mining companies pay royalties as a percentage of value of production to state governments that generally range from 4% or 5% to 7.5% for iron-ore and over 8% for coal.

The MCA noted that while these rates are often lower than those in China and India, they are well above effective mining tax levies in Canada and the US.

In the last decade, between 2011/12 and 2020/21, Australia’s mining industry contributed A$254-billion in company taxes and royalties.

MCA CEO Tania Constable said that given Australia’s higher effective company income taxes and stamp duties, especially on real estate transfers, it is not surprising Australia’s mining companies typically pay more tax and mining levies on their gross profits compared to Canadian and, in the case of copper, gold and iron-ore, the US.

“Leaving aside Brazil, China, India and Russia, Australia’s fiscal system is less competitive than most countries for copper, gold and iron-ore. This needs to be addressed to ensure that mining continues to be the largest contributor to Australia’s economy, accounting for 10% of GDP, our largest source of export income, with a new record high A$413-billion in resources exports last financial year, and supports over 1.1-million jobs at mine sites and in supply chains across the country,” Constable said.

The report suggests that to maximise its share of this investment, Australia cannot further increase its already globally high tax rates or introduce changes to workplace relations or regulations that stifle new opportunities.

Instead, it recommends that two types of reform should be considered to encourage more investment in the Australian mining sector: company income tax rate reduction from 30% to 25%, which would be close to the OECD average rate, and machinery expensing available to all companies on a permanent basis.

“Demand for commodities such as lithium, copper, nickel and rare earth elements will be essential to the technologies the world needs to drive lower emissions with recent estimates suggesting over A$4-trillion of investment in mining and minerals processing will be needed by 2050,” Constable said.

Edited by Creamer Media Reporter

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