Government faces more pressure over mining tax

Greens leader Christine Milne will push for a full-scale Senate inquiry into the design and performance of the mining tax.

Under the plan, expected to be put forward by the Greens today, the committee will examine all aspects of the tax’s design and administration including its controversial negotiation with the three big miners, The Age reported.

The Greens argue “'the extent to which the design of the tax as opposed to other factors such as commodity prices are responsible for the mismatch between actual revenue and revenue projections''.

The Greens want to fix what they say are loopholes in tax.

Proposed changes include increasing the tax rate to 40%, cutting Commonwealth refunds of state royalty increases and including other minerals as part of the tax.

The inquiry would need to be backed by the Opposition in the Senate to be successful.

According to speech notes obtained by Fairfax Media, Milne will accuse Labor of being “too scared” to take on the major miners, saying the tax was a quick-fix to keep miners happy in the lead up the to 2010 election.

''If a government is too scared to take on vested interests, then it is the people who can't afford ads in the paper or television, who can't afford expensive lobbyists to walk the halls of Parliament House, people who can least afford it – people like single mothers – who end up paying,''

''Well, the Greens aren't afraid.''

''Let us put to rest the nonsense that the mining industry cannot afford to pay more.

''In 2011, the big three companies that negotiated the mining tax – BHP Billiton, Rio Tinto and Xstrata – made a combined annual profit of $27 billion.''

The government’s mining tax only raised $126M in its first six months, a figure well short of predictions the tax would raise $2 billion for the 2012-13 financial year.

However analysts now say the net contribution will be $40m lower because miners will use their mining tax payments to reduce their company tax.

Rio Tinto and BHP Billiton have built up $1.7 billion worth of tax credits and will not have to make any mining tax payments until they are used up.

The credits do not reduce the amount of company tax the major miners have to pay, but they can be used to offset any future mining tax liabilities.

And with confirmation from Fortescue Metals chief Andrew Forrest that his company would not be liable to pay any tax under the MRRT this year, the government is facing renewed pressure over the design of the tax.

When the MRRT was reworked in 2010 following the axing of Kevin Rudd, the government agreed that all state royalties rises would be footed by the commonwealth.

BHP Billiton, Rio Tinto and Xstrata were involved in the MRRT renegotiation which took place just seven days into Gillard’s leadership.

It has been reported both Wayne Swan and Martin Ferguson gave away more than they were required, contributing to the poor returns the tax has produced.

The 1½-page agreement signed by the ministers and mining executives on July 1, 2010, replaced the original 40 per cent resource super profits tax with a much weaker 30 per cent minerals resource rent tax applying only to coal and iron ore, SMH reported.

The miners argued that the extraction of minerals required intricate expertise, understanding how to exploit the geology most efficiently, this saw the implementation of an ‘extraction allowance’ which cut the actual rate from 40 per cent to 22.5 per cent.

Adding pain to injury was a drafting error.

The agreement allowed "all state and territory royalties" to be deducted from the tax.

But Ferguson thought the words referred to "royalty rates that applied, or changes to royalty rates that were scheduled to apply in the future, as at 2 May 2010''.

His interpretation was based on what was stipulated in the original super profits tax.

Instead, the new agreement exposed the federal government to an expense with no ceiling.

Meaning the Commonwealth had to refund whatever the state governments chose to charge in the future.

Gillard has cited the recent review of the GST that found the trouble over the mining tax and royalty rates was "unsustainable and undesirable".

"Through the heads of treasury process, we will work on that with state counterparts in coming months," she said.

The review recommended giving mining companies a fixed credit of 5 per cent of their sales instead of offsetting state royalties which are 7 per cent or more.

However, Minerals Council of Australia chief Mitch Hooke has warned changes to the MRRT would hurt the industry.

“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, which are already at the upper end of global mining tax rates,” Hooke said.

“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.”

“We should be looking at how we can be internationally competitive for investment and jobs for the benefit of Australians today and future generations rather than how we can keep carving up the pie.”

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