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Mining Tax Opposition

8 August 2010


Recently, Independent Contractors Australia was approached by the Association of Mining and Exploration Companies (AMEC) asking if we would support it in its campaign against the proposed mining tax. AMEC supplied us its arguments on why the tax should be opposed.

We have agreed to support the AMEC position. ICA's logo will now appear on AMEC advertising which opposes the tax.

We have taken this move for the following reasons:
  • On looking at the government's statement and AMEC position, we find that the tax is vague and too little seems to be known about it.
  • We agree that miners, like anyone in business, need tax certainty if they are to be able to make decisions about where and when to invest. Mine projects have long lead-time and life cycles (usually decades). For projects to proceed and succeed, tax certainty is a critical element in highly complex mining viability assessments.
  • The tax is a mining industry-targeted one that appears to turn Australian mines into the highest taxed in the world.
  • ICA's interest is the tens of thousands of self-employed mining consultants, engineers, environmentalists, geologists, construction workers and the many thousands of self-employed people who supply additional services to mines--- for example, catering, vehicle maintenance, fencing contractors and so on! If mining projects are not viable and do not proceed, these thousands of self-employed people will lose Australian-based opportunities.
If the tax is to proceed, it would seem to make sense that the government engage in discussions with all players in the mining sector and respond to their concerns. What is essential, and we think highly reasonable, is the mining industry's call for tax certainty.

Links:

AMEC: Tax reform and the proposed Minerals Resource Rent Tax (MRRT)

The Association of Mining and Exploration Companies (AMEC) is the peak national body representing hundreds of mid tier mining and junior exploration companies operating throughout Australia, the majority of which are either located or have projects in Western Australia.

Government's proposed tax reform measures

On 2 May 2010, in response to the Henry Tax Review, the Rudd Government announced a number of tax reform measures, including a proposed Resource Super Profits Tax (RSPT).

Following a concerted apolitical anti mining tax strategy by the Association of Mining and Exploration Companies (AMEC) and other industry parties, the RSPT regime previously proposed by the Rudd Government was abandoned by the new Gillard Government on 2 July 2010 and replaced with the a new extra Minerals Resource Rent Tax (MRRT) regime applying to coal and iron ore commencing from July 2012.

The proposed MRRT was negotiated between the Government and three multi-national multi-commodity mining companies.

The details that have been provided are limited, but can be found in the Prime Minister's announcement. The document does not include any details on definitions, assumptions or mechanisms in which to calculate the effect of the extra tax on projects and businesses.

As 99% of the industry was excluded from the detailed confidential discussions and negotiations with the Government there still remains many unanswered questions from the hundreds of Australian mid cap miners and minerals exploration companies. In fact, one AMEC member has recently publicly stated that the company has had to prepare 12 financial models, all with differing outcomes, and is still unsure of the final effect of the extra tax on the company/project viability. The Government proposes to deal with all queries and concerns through a Policy Transition Group, which will conclude its discussions in late 2010. Businesses cannot wait that long for their investment and decision making processes to be fully informed.

Following a survey of its members, AMEC considers that the MRRT is a tax that:
  1. Is poorly designed, ill conceived and discriminatory,
  2. Is a short term tax grab and not a genuine longer term strategic tax reform program,
  3. Is complex, inefficient and will result in a significant administrative, compliance and resource imposts on industry and Government,
  4. Continues to severely damage Australia's sovereign risk and reputation as a safe place in which to invest,
  5. Continues to create extreme confusion and uncertainty in overseas investment, capital markets and decision making processes,
  6. Continues to detrimentally impact on financing, business and investment decisions for thousands of small mining and junior exploration companies, and many more service providers supporting the industry,
  7. Makes Australian iron ore and coal companies less competitive in the global market,
  8. Was originally intended to capture the profits of the 3 large multi-national companies, but has resulted in 317 other Australian iron ore and coal companies being caught in the first 'net', and being excluded from the recent consultation process,
  9. May widen and directly affect another 2000+ mining companies (which deal in other commodities) in the short / medium term after the federal election,
  10. Does not stimulate growth or promote further exploration and mining activities, or cater for future Australian generations, and
  11. Will directly affect all those service providers, suppliers, small businesses that support the mining and exploration sector. It will also indirectly affect all Australians, families and communities.
It is for these reasons that AMEC does not support the announced MRRT.

1 |Page In view of numerous unsuccessful attempts to engage with the Government, the lack of detail and clarity; a significant degree of uncertainty and confusion has been created within the industry and with domestic and overseas investors.

In response, AMEC launched an apolitical anti mining tax strategy which has included a national multi media advertising program.

As the proposed extra tax on mining is likely to affect all Australians, families and communities; third party support is being obtained from a wide range of industry bodies, small businesses, companies, service providers, suppliers and community groups.