Minerals industry responds to Federal Budget

The comments from the Minerals Council of Australia (MCA) form part of its response to the Federal Budget announced this week. In a statement the industry group said that Treasury is relying on a 14.4 per cent boost in the terms of trade in 2010-11, an 8 per cent rise in commodity exports and a 20 per cent lift in engineering investment driven by the mining sector to improve the budget bottom line.
NSW Minerals Council deputy CEO Sue-Ern Tan said, “The strong growth in the resources sector is helping to return the Budget to surplus three years sooner.
“If, as Canberra keeps telling us, we are not out of the woods yet, why are they willing to put the brakes on the one industry that singlehandedly kept Australia out of recession after the Global Financial Crisis?”
The MCA believes the Budget Papers directly contradict the Rudd Government’s claim that the Australian community is not receiving a fair return from its natural resource endowment. It stated that:
“As the increase in commodity prices translates into company profits, this is expected to have a positive impact on company tax collections from 2010-11.”
The MCA said the Budget shows the mining industry is already delivering a strong dividend for Australia and there is no need for a new tax, especially one set so high that it threatens the competitiveness of Australia’s most important export sector.
Treasury states that the largest contributor to high national investment in the past has been the mining sector. More than any other sector, mining ensured Australia weathered the global economic crisis and is primed for recovery.
New business investment is expected to recover strongly over the forecast period “led by a surge in mining investment”. Investment is expected to grow 7 per cent in 2010-11 and 12.5 per cent in 2011-12.

Mining tax threatens the growth story
It is a mining-led growth story that has benefited all Australians over the last decade, said the MCA.
The taxes (both royalties and corporate tax payments) have bolstered Commonwealth and State revenues; the profits have been re-invested to underpin new mine and infrastructure expansions; strong jobs growth has strengthened and revitalised regional communities; while suppliers and service providers have seen their businesses in all States and Territories expand to cater for a growing industry.
“The expansion in the sector has increased the net wealth of hundreds of thousands of average shareholders, including self-funded retirees and underpinned the growth in the superannuation returns of millions more,” said the MCA’s deputy chief executive Brendan Pearson.
“But the new tax on mining jeopardises that growth story. Tax rates at 57 per cent will put a hand brake on industry growth that will slow investment, reduce new job opportunities and weaken export growth.”
The Federal Budget papers confirm the Government has locked in the key features of its super tax on mining including the 40 per cent rate. Given this, the MCA questioned the purpose of the Government’s consultation process for the super tax.
“If the key design features of the super tax are locked in, the consultation appears to be little more than window dressing,” said Pearson, “there can be no consultation or ‘negotiation’ over the design of the tax if the main elements of the super tax are not on the table.”
Businesses that rely on mining are also worried about the impact of this new tax, according to the NSW Minerals Council. It said the $23 billion mining industry was a “powerhouse” for the State and the “lifeblood of many regional economies.”
Economic modelling shows that the resources sector produces a significant multiplier effect, and provides extensive social and economic benefits throughout the Australian economy, said Simon Bennison of the Association of Mining & Exploration Companies.
“For every job that is created in the resources sector, another four jobs are created. The reverse is also true."
Queensland’s minerals and energy sector has been heartened by its Government’s attempt to have the Federal Government overhaul its proposed resources tax.
“With more than $100 billion worth of new resource investments in Queensland under the microscope as a result of the super tax, the Queensland Government has every right to be concerned about the future of the investment, regional development and job creation,” said Queensland Resources Council chief executive, Michael Roche.
“The State’s initiative in securing a meeting with Commonwealth Treasury officials is welcome but the reality is that the Federal Government’s consultation agenda is centred on implementation of the super tax, not its rationale or design.”
Roche said the profits-based tax that has been in operation for more than 20 years in the offshore oil and gas industry offers double the threshold rate of return before kicking in, and when it was introduced it applied only to new projects.

Specific Budget initiatives
The MCA welcomed the greater focus on skills and training in areas of shortage such as resources.
The $661 million training and education package will help underpin business in its effort to create a more skilled workforce. Minerals companies are committed to training, and government co-investment of 50 per cent of the costs of training (up to 90 per cent for small firms) will help deliver on that commitment.
The estimated 39,000 training places, as well as the numeracy, literacy and language course for 140,000 Australians will help improve productivity.
The MCA also welcomes the Government’s commitment to ongoing reform of the vocation and education training sector through the promotion of transparency via the MySkills website – benchmarking the performance of training providers - and the guaranteed funding for a national regulator despite the ongoing opposition of two State Governments.
The $1 billion equity injection into the Australian Rail Track Corporation will assist in the ongoing expansion of Australia’s productive capacity.