Gray won’t change mining tax

Newly appointed Federal Resources Minister Gary Gray has ruled out making any changes to the mining tax but has conceded it could’ve been handled better.

Five month’s out from the federal election the former Woodside executive has taken over from Martin Ferguson who last week resigned following the failed leadership spill.

Gray said it will be “business as usual”.

The mining tax, originally put forward under Kevin Rudd’s leadership was renegotiated by Julia Gillard when she came to power.

Gray admitted the introduction of the tax had its faults, but told the ABC it is good for the country because it delivers extra revenue to the government.

"The way in which it was introduced was less than perfect," he said.

"But understanding now that with the [mineral resources rent tax] and with the increases in royalties, we now have a minerals sector that's contributing to the coffers of state and federal governments in a way that has never happened before."

Gray defended the structure of the tax, saying "I am not about to make any changes".

But with the likes of Rio Tinto and BHP Billiton building up $1.7 billion worth of tax credits they 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.

Last month Fortescue Metals chief Andrew Forrest also confirmed his company would not be liable to pay any tax under the MRRT this year.

The government is facing renewed pressure over the mining tax which only raised $126 million in its first six months, a figure well short of predictions the tax would raise $2 billion for the 2012-13 financial year.

The current structure of the MRRT allows the largest 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 of May 2010.

This means large investments the miners made in operations at a time when commodity prices were at their peak can be used to offset their liabilities.

How long the tax credits last is highly dependent on commodity prices and profits in coming years, however research conducted by BDO shows that both Rio and BHP are unlikely to pay any taxes under the MRRT for at least half a decade.

The government has been facing pressure to rework the design of the tax after it was revealed revenue was billions of dollars short of predictions.

The opposition, which plan to scrap the tax if elected in September, have described the tax as a "dog's breakfast", and blamed the government for negotiating the tax with major miners BHP Billiton, Rio Tinto and Xstrata.

"The government negotiated it personally, exclusively and in secret with the managing directors of the three biggest mining companies. They didn't have commonwealth officials in the room, and they made a number of very costly promises," opposition assistant treasury spokesman Mathias Cormann said last month.

"The MRRT was a fiscal train wreck in the making."

The government is also under pressure from The Greens to make changes to the mining 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.

Gray yesterday told the ABC it is important that the resources sector continues to grow in the face of price uncertainty and softening markets.

"I think it's right to say that as we look to the future for our extractive industries, we see price uncertainty, some softening in markets and that's been well and truly flagged both by analysts but also by the Australian Government over the course of the last four or five years," he said.

"Our need to continue increasing our volumes means that we do have to ensure that cost pressures are kept to a minimum so that we can ensure a profitable mining sector."

Industry response

While Gray’s appointment to the resources portfolio has been welcomed by the industry, some representatives say he has inherited a portfolio in need of reform.

The Association of Mining and Exploration Companies (AMEC) said Gray had taken on a portfolio in desperate need of reform.

As reported by Business SpectatorAMEC told AAP that Australia's mining industry was no longer internationally competitive, with production costs including taxes and levies continuing to rise dramatically and investment lost to cheaper offshore projects.

AMEC urged the federal government to introduce tax credits to address declining discovery rates and encourage investment in greenfield exploration.

Gray agreed there are areas that need addressing.

"I'm not about to suggest that I [inherited] a portfolio full of troubles and problems out of the cost pressures that we face," he said.

"But I do think it's reasonable to say that we understand the problems that we face as one of the world's great resource-exporting countries and we also have the wit and the capacity to think through what some of those solutions might be."

The Minerals Council of Australia also weighed into the debate stating the nation needs to safeguard its competitive edge.

The Chamber of Minerals and Energy (CME) director Nicole Roocke said she was pleased the portfolio had gone to a West Australian, given the state's dominance in the industry.

She said he has a good understanding of WA and the sector, and his challenge would be to ensure federal politicians and bureaucrats understood the impact of their decisions on the state.

Gray supports foreign labour

Gray told Fairfax Radio that he supports the use of foreign labour as long as it is done properly, complementing local labour to address skills shortages.

"I do think we have to ensure that when we bring in foreign workers, they are doing work that is required and we have the skills that are needed, we don't simply bank labour or have a preference for hiring foreign workers over Australian workers," he said.

He told the AFR that skilled migrants are critical for economic growth and "form a critical part of our labour supply and our skilled labour supply".

"We need to have a carefully thought through skilled migration program that can support the needs of the economy. In order for us to ensure that the resources sector continues to grow and that new projects begin on time and on budget, we need to have the best possible structures in place to support the skilled worker needs of the Australian economy."

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