Small miners disappointed with lack of exploration incentives in MRRT transition report

The Federal Government’s Policy Transition Group chaired by former BHP chairman Don Argus has recommended that future royalty increases to be charged on mining companies by state governments should be credit against federal taxes, in a win for major miners.

But smaller miners have expressed their disappointment with the report, which suggests phasing in a tax for smaller companies earning between $50-100 million.

Chief executive of the Association of Mining and Exploration Companies, Simon Bennison, says the report does not address bias towards larger companies and that the biggest disappointment was the lack of support for an exploration development program.

“There were a number of positives in the report, but… our biggest disappointment is that the exploration development program wasn’t given a recommendation.”

Bennison has also warned that the council could start another advertising campaign if regulations on future royalties are not taken up.

Smaller companies were hoping the report would have contained these concessions, which would have actually been available under the previous version of the tax introduced under former Prime Minister Kevin Rudd.

Bennison also says the threshold for the phase-in period should be increased from $50 million to $250 million, saying that “there are plenty of smaller miners in that area of $150-200 million”.

The report also suggests that smaller companies unlikely to exceed the $50 million threshold should abide by simpler obligations.

In total, the report makes 93 recommendations, with several of those applying to smaller miners. But the Government has said that it will wait until early next year to make a response, given many of the recommendations move away from initial agreements.

The biggest change is the recommendation that all future royalties should be creditable against minerals tax liabilities, which comes after the Gillard Government said it would not credit any royalty increases in the future.

But now, the report issues a recommendation directly in opposition to that remark.

“The current and future state and territory royalties on coal and iron ore should… be credited and it is imperative that the Australian, state and territory governments put in place arrangements to ensure that the states and territories do not have an incentive to increase royalties,” the policy group said in its report.

Major mining groups have approved the report, with Minerals Council of Australia chief executive Mitch Hooke saying that, “it is imperative that this and other key design features of the MRRT are enshrined in forthcoming legislation and not deferred to regulation”.

The council also applauded a recommendation that the taxing point of the new levy be applied immediately after the ore is taken out of the ground before processing, but rejected one recommendation that base deductions and limits on transferring losses between coal and iron ore projects be changed.

Rio Tinto and Xstrata have pledged their initial support for the recommendations.

Magnetite miners have said they are unhappy they are still included in the tax but have also welcomed the proposal to move the taxing point closer to when the materials are processed.

But the report is sure to strike a battle between the Government and the states, with Queensland and Western Australia rejecting a proposal to credit future royalty rises.

Queensland premier Anna Bligh said yesterday this was a point on which the state would not budge.

“We reserve the right to determine the appropriate royalties as a return for the minerals taken out of our state,” she said. “If that has consequences for federal arrangements that needs to be negotiated frankly between the mining companies and the Federal Government.”

Western Australia premier Colin Barnett said the tax proposal was a “complete shambles”, and said the Government should scrap the tax entirely.

“My advice to Julia Gillard is to have a nice Christmas and a happy New Year, sit down quietly and think about it and realise this tax proposal is a dog and just get rid of it,” he said.

“If the Commonwealth genuinely believes that mining companies don’t pay enough tax, then they should look at company tax rates – that’s something they do have constitutional control of.”

But Treasurer Wayne Swan has said it will be some time before the Government provides a complete response.

“Recommendations won’t be accepted or rejected (today), ahead of cabinet consultation,” he said yesterday. “I will be publicly releasing the final report immediately and flagging an ongoing process of consultation… before we provide draft legislation next year.”