Tax deal with miners too good to be true?

Since announcing details of the Minerals Resource Rent Tax (MRRT), on July 2nd, the Government has come under increasing scrutiny over its claim that the revised tax plan would see the Government lose only $1.5 billion from the forecast $12 billion in the first two years.
Figures released by Treasurer Wayne Swan, on July 14th, predict that over the first two years of the tax, the changes will result in a $7.5 billion reduction in the take from miners – five times the figured announced on July 2nd.
What it did not disclose at the time was that the $1.5 billion figure was based on upgraded forecasts for mineral prices and volumes, which translated into a $6 billion revenue boost.
If mineral prices fall below Treasury's buoyant expectations, in coming years, there is a risk that revenue from the tax would be too small to finance planned initiatives. But Swan reportedly said he was confident in the revised figures.
''Prices will go up, they'll come down,'' he reportedly said.
''But everybody can be confident that they will be a higher level [than] the historical average was.''
Some media reports have suggested that the Prime Minister Julia Gillard and Wayne Swan misled the public on the cost of their compromises with the three largest mining companies, BHP Billiton, Rio Tinto and Xstrata.
Analysts from Goldman Sachs JBWere believe that the Government has underestimated the value of the concessions, in the first two years, by as much as $1.6 billion. Other media reports have suggested the figure could be more like $3 billion in additional costs.
Goldman Sachs estimates that, on a like-with-like basis and using quite pessimistic assumptions about commodity prices, the cost to revenue of the changes will total about $35 billion by 2019-20.
Fortescue Metals Group remains concerned regarding the Government's ability to raise $10.5 billion by 2014 through the proposed Minerals Resources Rent Tax (MRRT).
Fortescue’s chief financial officer Stephen Pearce said the company was disappointed that the economic statement provided no clarity on how or where the tax would be raised.
Pearce said Fortescue will continue to press the Government to release the financial modelling based on the discussions it had with BHP Billiton, Rio Tinto and Xstrata.
“Treasurer Wayne Swan had a significant opportunity to provide clarity to the industry but failed to do so in his announcement,’ said Pearce.
“This lack of transparency suggests there is something hidden within the tax regarding its structure and basis.”
He said without access to the detailed information, the MRRT appeared to unfairly favour the multi-national, multi-commodity miners in some elements of its design.
“We are very concerned that discussions on the structure of the tax are being held during a heightened political environment prior to the election and the impact any subsequent changes to the tax may have on current projects after the election,” Pearce said.
Greens leader Bob Brown said on July 12th that he will not support Opposition leader Tony Abbott’s bid to defeat the revised mining tax, but said he would try to obtain more from mining companies.
"I think the backdown by Julia Gillard is going to cost taxpayers something like $4 billion per annum in future budgets," Senator Brown told the Nine Network.
"Now that's money that is not available for schools, hospitals, security and so on. The big miners will put that in their back pocket and small business, by the way, will lose - business generally will have an extra 1 per cent tax to pay as a result of that."
Senator Brown's comments came as West Australian Premier Colin Barnett released figures suggesting that his State would be forced to foot 60-65 per cent of the $10.5 billion mining tax revenue.
In a letter from Barnett to the Senate select committee on fuel and energy, he said, "In the absence of further details from the Commonwealth it is difficult to estimate Western Australia's contribution to this figure with any precision. “Nonetheless, a range of 60-65 per cent is considered justifiable, based primarily on value of production estimates for iron ore and export-quality coal derived from state royalty projections and grants commission data."
Figures in the letter suggest that the State would contribute about $6.4 billion under the new tax by 2014.