Gillard’s tax changes appease major miners

The renamed Minerals Resource Rent Tax (MRRT) will apply only to iron ore and coal in Australia, and will be capped at 30 per cent rather than the original 40 per cent proposed.
''The breakthrough agreement keeps faith with our central goal from day one: to deliver a better return for the Australian people for the resources they own and which can only be dug up once,'' Gillard said in a statement.
''These represent three-quarters of the value of our exports and resource operating profits and account for an even greater share of resource rents in the mining industry. They also represent the vast bulk of growth in the sector over the coming decades," she said.
Other commodities will not be included, which reduces the number of affected companies from 2,500 to around 320.
Significantly, the new tax will only kick in when profit exceeds the long-term government bond rate plus 7 per cent - compared with just the bond rate in the original plans of the Rudd Government - meaning the cut-in rate will be about 12 per cent at current bond rates.
The changes are expected to slash $1.5 billion from expected revenues from the tax. The RSPT was supposed to fund a 2 per cent cut in the company tax rate, but the changes now mean there will only be a 1 per cent cut.
However the boost in compulsory superannuation contribution from 9 to 12 per cent will remain.
Companies can also use the market value for their assets in assessing their taxable income, an area which was a key concern for the miners.
Treasurer Wayne Swan accredited the breakthrough to Gillard's role.
''Her intervention changed the tone of the debate,'' he told the media briefing.
"We have a situation where the larger companies are going to be paying more tax and that needs to be understood," he said.
The MRRT excludes coal and iron ore operations with profits below $50 million and excludes altogether the metalliferous sector (copper, zinc, lead, nickel etc.). These projects will remain within the existing State Royalties regime.
Gillard said she will set up a ''policy transition group'' to oversee the introduction of the tax changes, which will be chaired by former BHP chairman Don Argus and Resources Minister Martin Ferguson.
BHP Billiton chief executive officer, Marius Kloppers, said the proposed MRRT is closer to meeting the tax design principles that the company had previously suggested. Most notably, that businesses can transition into the MRRT at market value of the business (not the previously proposed book value) with depreciation over 25 years.
“This is particularly important for the iron ore and coal operations which have been in existence for many years,” said Kloppers.
He said the headline tax rate of 30 per cent was competitive, with a 25 per cent allowance for the extraction activity such that only the resource profit is taxed.
Rio Tinto said in a statement, “The MRRT proposal is an improvement on the RSPT. Recognition of market value for existing mines and a reduction in the headline tax rate represent significant progress in achieving Rio Tinto’s fundamental principles of tax reform.”
But not everyone is happy with the outcome of discussions, with mid-tier and smaller miners claiming to have been shut out of negotiations.
Mining executive Professor Clive Palmer said the Federal Government failed to consult widely enough with Australia’s minerals sector.
“The new Prime Minister has been very quick to come up with this sweetheart deal but it remains unacceptable…this is still a large tax,” he said in a statement.
“The Prime Minister also promised to negotiate with the wider industry but only the big three companies were involved in the process of reaching the new deal and these are companies with headquarters offshore and Australians are not the majority shareholders.”
The Association of Mining & Exploration Companies’ (AMEC) Simon Bennison told ABC Radio, "The Government feels the only way it can negotiate through these sorts of situations is with three companies," referring to BHP Billiton, Rio Tinto and Xstrata.
"That's not the way to do business. It typifies the way this Government responds to small businesses in this country… it’s been flawed from day one for the mid-tiers and it still is.”
However, chief executive of the Queensland Resources Council Michael Roche said he was sure that QRC members generally, “small, medium and large - and the regional communities that rely on them” would be heaving a collective sigh of relief after the announcement.
He also said that Xstrata Copper will resume its $589 million Ernest Henry underground mine and reinstate its $30 million north Queensland regional exploration program.

Mining tax changes leave questions for explorers
As part of the new MRRT plan, the exploration rebate has been scrapped, which would have seen the Government share 40 per cent of the risk of projects.
The Australasian Institute of Mining and Metallurgy (AusIMM), which represents 10,000 professionals working in the global minerals industry, issued a statement saying that the tax plan still leaves many questions to be answered.
President Greg Chalmers said the exploration rebate was one positive feature of the original mining tax proposal, but its potential benefits had been lost in the overall super tax proposal.
“We realise this is a pragmatic decision by the Government in its bid to preserve the net revenue expected to flow from the new MRRT, but it once again breaks a clear 2007 election promise by the Labor Party to encourage increased exploration in Australia.
“Indeed, the opportunity to replace our depleting mineral inventory through increased exploration activity is the only way to address the Prime Minister’s major concern expressed this morning: That mineral resources can only be extracted once."

Consulting firm Deloitte summed up changes to the mining tax as follows:

. The MRRT tax rate will be 30 per cent. However, assuming the MRRT will be tax deductible, the theoretical nominal tax rate of 49 per cent when combined with the company tax rate is unlikely given the allowances and adjustments noted below.
. Mining companies can now elect to use the market value of the mine assets, including the mining rights, valued as at May 1st, 2010, as a starting base for projects. This would then be depreciated over effective life of the mine, up to a maximum of 25 years.
. A 25 per cent reduction in MRRT taxable profits will be provided via an Extraction Allowance. MRRT losses will also be uplifted at the government long term bond rate plus 7 per cent.
. Government “underwriting” of RSPT losses and royalty refunds will be scrapped though royalty credits will be given against the MRRT and uplifted at the government bond rate plus 7 per cent, if not immediately used.
. Unlike the PRRT, it appears that there will be fewer restrictions on the transferability of MRRT losses between projects with the exception of royalty credits noted above.
. Capital expenditure on projects made after July 1st, 2012, will now be immediately deductible. This means that, unlike the RSPT, the MRRT should not kick in during the early stages of a project.