Independent consultants from Synergies Economic Consulting have found that the implementation of a Flow Through Shares (FTS) scheme would have immediate benefits to the Australian mining industry and national economy.
Under existing Australian taxation arrangements junior mineral exploration companies with little or no taxable income are unable to immediately deduct exploration expenses, which results in lower levels of activity and fewer significant new discoveries and mining projects.
Promised by the Rudd government before winning the 2007 election, the FTS scheme would allow junior exploration companies pass ‘unusable’ tax deductions on to their Australian shareholders.
Eligible shareholders would then be entitled to use ‘exploration tax credits’ to offset their tax liabilities, which would help to maintain investment momentum.
In their report, the consultants found that these deductions would allow junior explorers to increase their activities by 10 to 30% and provide immediate benefits to the mining industry.
The report said that the implementation of an FTS scheme would create over 4,000 new jobs, $114.4 million in additional Gross Domestic Product, $191.2 million in additional real private consumption and $965.1 million in additional real investment.
According to Queensland Resources Council (QRC) chief executive Michael Roche, FTS will help Australia regain its appeal as an exploration location.
“Australia has a task ahead of it in reviving its global exploration investment appeal and an FTS scheme for junior exploration companies is a strong launch pad to increase the likelihood of quality mineral, oil and gas discoveries,” he said.
Association of Mining and Exploration Companies (AMEC) CEO Simon Bennison agrees that the FTS is vital for Australian mining.
“The fact is that regardless of the current economic turmoil, FTS is simply good policy that fixes a major shortcoming of the Australian taxation system,” he said.
“FTS will correct the tax asymmetry, shore-up investor confidence and provide the bonus of helping to stimulate the flailing Australian economy.
“The Synergies report amply demonstrates that FTS is welfare enhancing as the benefits of the policy outweigh its costs.”
Beyond the short term benefits that would come from an increase in Australian minerals exploration, there would also be significant long term positives, Bennison said.
“These benefits don’t take into account any of the long term returns that come from the royalties and infrastructure new discoveries provide the commonwealth,” he said.