The Minerals Council of Australia (MCA) welcomes the opportunity to comment on the Minerals Resource Rent Tax Amendment (Protecting Revenue) Bill 2012 (the Bill). The Bill is designed to restrict the full crediting of State and Territory royalties under the Minerals Resource Rent Tax (MRRT) to those in place as at 1 July 2011.

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 ore projects, albeit at the upper end of globally competitive tax rates. The MCA recommends that the Senate Economics Legislation Committee reject both the Bill and the premises on which it is based.

Economic and commercial context

Coal and iron ore are Australia’s two largest export industries which together accounted for more than one third of Australia’s total export earnings in 2011-12. Combined they employ more than 80,000 Australians directly and hundreds of thousands more indirectly, with the vast bulk of employees in regional and remote Australia.

The growth of these industries has yielded significant economic gains to Australians over the last decade. These benefits have been distributed widely throughout the Australian community through a range of channels, including via expanded demand for labour and intermediate inputs (especially services), higher investment and increased revenues to governments.

Even before the introduction of the MRRT, coal and iron ore were among the highest taxed industries in Australia based on the two main fiscal instruments used to collect mineral resource revenues – State and Territory royalties and Commonwealth company income tax. Due overwhelmingly to higher contributions from these industries, revenue to Australian Governments from the minerals industry has risen more than four-fold since the start of the last decade with a cumulative total from royalties and company tax alone exceeding $124 billion since 2001-02. The industry tax take ratio (calculated as company income tax and royalties over taxable income before royalties) has remained high and stable over this period, averaging 41.6%.

Business conditions in the coal and iron ore industries have deteriorated markedly over the last 12 to 18 months. By October 2012, monthly average thermal coal and coking coal prices were down 36% and 55% respectively from highs reached in 2011, while iron ore prices were down 41%. The continued high Australian dollar has also impacted heavily on industry revenues as part of a larger structural deterioration in Australia’s cost competitiveness that has developed over recent years.

This more difficult operating environment (most acute in the coal industry) has seen the closure of some relatively high-cost operations, job losses and the scaling back of investment plans. It is now widely recognised – including by official forecasters – that there are no more “easy gains” for Australia from high prices for coal and iron ore. Looking ahead, further gains from the development of Australia’s coal and iron ore resources will rely overwhelmingly on expanded export volumes, rigorous cost control and higher productivity.

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