THE Gillard government faces a new threat to the estimated $2 billion in revenue it expects to raise this year from the mining tax because the biggest iron ore and coal producers are rapidly building up state royalty “credits” to offset their commonwealth payments.
While BHP Billiton, Rio Tinto and Xstrata did not make any profits-based payments under the new minerals resource rent tax in the first quarter of its existence, they are accruing millions of dollars in unexpected deductions from the tax.
The three mining giants all calculated a zero liability for the MRRT in the July-September quarter, but remain liable for billions in state royalties from iron ore and coal production that are “credited” against the federal tax.
That is how the tax is designed to operate. That is one of the reasons why I have always maintained this tax will raise no money – I have to say by ‘no money’ I always thought ‘not very much’, not that it would raise precisely $0. Bear in mind that the States have increased royalties since then.
I was asked last week if my ‘no revenue’ prediction was because I had forecast the decline in commodity prices – no, my prediction was predicated on the design of the tax itself. It was entirely predictable that if the Commonwealth would refund State royalties that the States would increase their royalties to the full value of any expected tax revenue. The net revenue to the Commonwealth would be close to zero. As it has turned out the gross revenue to government this quarter was zero.
The MYEFO has this statement:
Net revenue from the MRRT is expected to be $2.0 billion in 2012-13, $2.4 billion in 2013-14, $2.1 billion in 2014-15 and $2.6 billion in 2015-16, which represent the net impact on revenue across several different heads of revenue. These include the offsetting reductions in company tax (through deductibility) and interactions with other taxes.
I interpret that to imply that the Treasury expects $2 billion this financial year after royalties. That highlights the full debacle – those tax credits cost the government real money as they accrue at the long-term bond rate plus seven percent.
Update: Wayne Swan doesn’t understand how his own tax works. Here is the Mineral Resource Rent Tax Heads of Agreement:
All State and Territory royalties will be creditable against the resources tax liability but not transferable or refundable. Any royalties paid and not claimed as a credit will be carried forward at the uplift rate of LTBR plus 7 percent.
Yet this is what Swan told the Parliament yesterday:
The fact is that unused royalties are not transferrable, nor are they creditable. We had statements to the contrary in the House today by the shadow Treasurer.
Swan has misled the House and will need to correct that statement.