THE South Australian mining industry may face another round of hits as the Federal Government explores opportunities for savings in the lead up to the release of its budget in May.
The South Australian Chamber of Mines and Energy (SACOME) has called on the State Government to lobby against proposals to strip fuel tax credits, reduce research and development concessions, end immediate deductibility of exploration expenditure and cut accelerated depreciation in the oil and gas industry, describing the actions as an “ongoing onslaught” against the state’s largest export industry.
According to a report by The Australia Institute, funded by Australian activist group GetUp, the Federal Government provides more than $4 billion in direct subsidies to mining companies each year, largely in the form of cheap fuel and tax breaks for building roads and railways. SACOME reported in a media release that the stripping of fuel tax credits would not only hit mining and energy companies, but every industry utilising the fuel credit system, particularly transportation.
“Diesel is used extensively on remote mines for electricity generation, trucks and machinery and the tax credits assist in reducing operating costs by removing fuel excise as an impost on a critical business input – it is not a subsidy,” SACOME acting chief executive Dr Nigel Long said in a statement.
“Cutting the credits will hurt existing operations and potentially harm projects in the feasibility stage.”
In relation to the bundle of proposals, Dr Long said it was clear “that the Treasurer and his department did not understand how the resources industry works”.
Upon returning from an overseas trip, SACOME chief executive Jason Kuchel said he too was fearful that the Australian Tax Office and the Federal Government did not adequately understand “the mechanics of what’s required to get a mine developed”. “One of these things [proposals] may affect one or two projects, but combined of course they’re more likely to affect more and more
projects,” he said.
Mr Kuchel explained that at any time across Australia, there was always an exploration project struggling to be developed or an existing mine struggling to maintain operations, and that the proposed changes to the way the taxes were treated could either stand in the way of project development or result in mine closures. He said that of particular concern to SACOME was the proposal to end immediate deductibility of exploration expenditure. “I think it’s fairly widely known that one of the reasons why South Australia has been underexplored over the years is because of the depth of cover that we have covering much of our mineral resources,” Mr Kuchel said. He explained that exploration companies often had to do a lot of overburden removal, a process which could currently be claimed as an operating expense. Should the tax rule be changed, immediate deductibility would not be possible and the cost of overburden removal would have to be capitalised and recuperated during the life of the mine. According to Mr Kuchel this would be an “illogical” reform, because “you’re not actually building something…you’re just shifting dirt.
You haven’t traded something, you can’t sell it,” he said.
“Once again its one of those things where the government’s not actually going to get more money out of it…all that it appears that they’re trying to do is help their surplus in the coming budget. Or help their attempt to get to a surplus in the coming budget. But it the long term, it makes no difference to the amount of money that the Federal Government takes… in tax,” Mr Kuchel said. He also said that exploration was essential to the resources sector, and that the combined tax reform proposals would reduce Australia’s competitiveness in the global market. “The reality is whilst many projects may be profitable in the medium to longer term, there is a lot of capital that goes into getting these projects up and running, and if it doesn’t stack up quickly enough then you won’t get the investment dollars [required] to get the project up and running,” Mr Kuchel said. SACOME has stated that, should the proposals go ahead, the fuel tax credit cuts would represent the fourth new tax on the mining industry in 2012 alone, with the Mineral Resources Rent Tax and the Carbon Tax both now in place. “The proposed reforms will act like a GFC sledgehammer, reducing investment in exploration, particularly greenfield exploration that targets new deposits”, Dr Long said.
“We call on the State Government, State MPs and Senators to join us in lobbying against these harmful policies, and for the Federal Treasurer, Hon. Wayne Swan, to release his report from the Business Tax Working Group into these proposed cuts to provide some certainty for industry.
“How many more kicks do we have to take before high costs and uncertainty drives the very people away who are prepared to take a risk to grow our resources and energy sector?”
By Rachel Dally-Watkins