Giving Australian miners a fair go

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 24 Jan 2012   Posted by admin


THE cry ‘If it can’t be stopped, at least make it fair’ was heard loud and clear from junior companies, lobby groups and analysts Australia-wide in the wake of the introduction of the Minerals Rent Resource Tax (MRRT) to the House of Representatives of Federal Parliament in early November.
New lobby group Eureka 2011, the Association of Mining and Exploration Companies (AMEC), national accounting firm BDO, the Chamber of Minerals and Energy of Western Australia (CME) and a number of mining companies, including Fortescue Metals and Atlas Iron, have all maintained their firm opposition to the tax, despite regular announcements from the Federal
Government aiming to win over Australians. According to the Labor Government, the MRRT would help Australia maximise the opportunities presented by Mining Boom Mark II and ensure all Australians received a fairer return from the nation’s non-renewable resource wealth.
It would fund a billion-dollar tax break for small businesses, allow for a cut in the corporate tax rate and an increase in compulsory superannuation contributions, and also provide a means to improve regional infrastructure.
However, Eureka 2011 is aiming to have the MRRT put on hold until it can be subjected to a more coherent planning and review process.
The group was formed by communication professionals Peter Ellery, Jim Ward and Michael Baker, who together have more than 100 years of experience in the business and resource community. Among complaints that the MRRT was ill-conceived and inefficient, the group’s main concern was that the tax was discriminatory and unfair.
In an open letter to Prime Minister Julia Gillard, Treasurer Wayne Swan, and all members of the Federal Parliament and each of the State Parliaments, Eureka 2011 explained that Australia’s ‘big three’ multinational mining companies – BHP
Billiton, Rio Tinto and Xstrata – were the only representatives of the mining industry involved in the final drafting of the MRRT.
“The big three miners will gain a competitive edge as a result of their last minute cooperation with the Government. New and emerging Australian miners will pay a higher effective tax rate than the major multinationals which helped frame it,” the letter said.
“We’ve got a surprising number of replies and acknowledgements, and some good comments…and we’ve attracted, for a small organisation, a fair bit of favourable media attention, which was one of the purposes in putting out this letter,” Mr Ellery told The Australian Mining Review.
He said the group was now focussed on sending a second letter to the Federal Parliament pointing out the problems that the Australian Labor Party (ALP) had created for the mining industry since it came into power under Kevin Rudd.
The 30 per cent MRRT would apply to the extraordinary profits of coal and iron ore miners from July 2012. According to the ALP, the bulk of the big miners would pay the MRRT from day one, while the tax would only apply to junior and mid-tier miners once they had made enough profit to pay off their initial investments.
However, many in the industry believed the tax unfairly targeted small companies. “Despite consistent requests made by AMEC, the Federal Government still chooses to ignore the significant effect the MRRT will have on small emerging Australian miners, and our many concerns and recommendations have gone unheard,” AMEC chief executive officer Simon Bennison said in a statement. Iron ore miner Fortescue Metals has frequently spoken in support of the smaller mining companies. Its chairman, Andrew Forrest, claimed Fortescue was a glaring example of the unfairness of the MRRT as it would be paying less tax than its junior iron ore counterparts.
During a teleconference in early November, Mr Forrest said Fortescue was very much in a “similar basket to the other majors who we considered protected from this tax, but we don’t think that is correct – we don’t think that is fair.”
Mr Forrest said in a statement that the MRRT would give an unfair advantage to Australia’s largest iron ore and coal miners by reducing their overall unit cost compared with the smaller mines.
According to a Fortescue statement, “The current structure of the MRRT allows the biggest mining companies a deduction on their overall MRRT tax liability, based on either the book value or market value of their separate relevant coal and iron ore projects as at May 2, 2010.
“These deductions are not available to smaller or intending producers who, because of this tax, are now instantly less competitive against the world’s biggest miners.” Atlas Iron managing director David Flanagan said during the teleconference that is was the unfairness of the tax that Atlas opposed.
“I’ve said it before and I’ll say it again: Atlas, and a lot of our compatriots in the iron ore state, we are not sitting here objecting to an increase in tax rates. “We’re not here saying that we don’t want to contribute for all Australians…all we
want is this legislation that’s going through at the moment to say something like…‘we’re all going to pay the same rate of tax’ and we don’t think that that should be a problem, and we think that that should be very easily introduced into this legislation such that the juniors do not pay a higher rate of tax than the globals,” Mr Flanagan said. Also during the teleconference, Mr Bennison reiterated what AMEC has been saying for the past 18 months: “We’re very much opposed to the MRRT”. He said AMEC would support any move made by the Independents to vote down the MRRT or to make sure that it was a fair tax across the industry so that no company gained a decisive benefit from it. This view was also held by the CME, which maintained its strong preference for the retention of the current state royalty regime administrated by the State Government, with revenue flowing to the state. “Industry supports genuine reform of the Australian taxation system to provide for an efficient and effective tax regime, but the MRRT places an additional burden on the sector and weakens the ability of Australian projects to compete on the international stage,” CME chief executive Reg Howard-Smith said
in a statement.
Meanwhile, in October this year, BDO proposed capping MRRT payments for small miners at the same tax rate paid by the big three miners in order to make the tax fairer for across the industry. A discussion paper containing suggestions on ways to reduce inequities by the MRRT was supplied by BDO to the Federal Government. BDO corporate tax director John Murray said the large starting base and royalty allowances awarded to the big miners under the MRRT created a massive capital shield that would provide significant cost advantages to the detriment of smaller miners.
“This inequity provides a cost-competitive advantage to the larger, established miners at the expense of smaller, fledgling miners when they are selling product into the marketplace,” he said.
BDO recommended that the MRRT should only become liable for payment in the year following the first year any one of the big three miners became liable for payment of theMRRT, and that the timing be applied to iron ore and coal separately.
In addition, the company said that the rate of MRRT payable by taxpayers should not exceed a benchmark rate calculated by reference to the highest of the MRRT liabilities for the big three mining companies for the preceding MRRT year to each class of taxable resource, whether iron ore or coal. Mr Murray said that BDO’s proposal could cause budgeting issues for the Federal Government but said that “the fairness test should be a primary driver of taxation legislation”, and claimed that the BDO proposals passed that test. BDO released an update in early November that reinforced the need for fairness for small miners, saying that updated modelling on the impact of the MRRT confirmed that larger mining companies would not pay the MRRT when it was imposed due to their large capital shield.
“The modelling proves the MRRT hits small miners and leaves alone the big established miners with big established profits,” Mr Murray said in a statement.
“In its own words, the Government wants a fairer, simpler tax system.” The resource industry has argued that the MRRT in its current form is neither fairnor simple, and Mr Murray said that BDO’s suggested “time and rate safeguards would
provide the MRRT with the fairness the Government says it wants”. During the November teleconference, Mr Murray summed up the importance of its modelling of the impact of the MRRT. “BDO is simply saying that, based on our
modelling, we see the big guys not paying MRRT and we understand the small guys will be paying MRRT,” he said. “The impact on the small miner in that scenario is totally unacceptable in our view and so we think there needs to be a safeguard
measure introduced, and that’s been slated in our discussion paper lodged with [the] Treasury.
“And time’s running out. Now is the time for that measure to be introduced.” Legislation for the MRRT was expected to pass through the House of Representatives by the end of 2011, before going before the Senate in February 2012.

 

By Rachel Seeley


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