[miningmx.com] — AUSTRALIA’s biggest mining companies on Tuesday may have won a long-running battle with Prime Minister Julia Gillard after an influential tax panel recommended the government pick up future state royalty payments under its mine tax reform package.
The recommendation was one of 90 made by the transitional policy group, headed by the Australian mines minister, Martin Ferguson, and Don Argus, a former chairperson of BHP Billiton , the world’s biggest mining house.
If the recommendation over future royalties is adopted, it could save the nation’s biggest coal and iron ore miners hundreds of millions of dollars in future royalty payments to resource-heavy states, such as Western Australia and Queensland, and silence an industry campaign that has accused Gillard’s government of reneging on a deal to cover the royalties.
“The government will consider very carefully the recommendations in this report and respond early next year,” Australian Treasurer Wayne Swan said.
“I don’t intend to endorse or reject every recommendation today … But there is a lot of common sense in this report,” Swan said.
In October, BHP Billiton and Rio Tinto were reportedly close to walking away from an earlier agreement due to a dispute over who would pay if a state government increased royalties.
The agreement was reached behind closed doors and its details only made public after the miners complained the government had changed its mind on paying any future royalties out of tax.
“It is now crystal clear that all current and future royalties must be credited,” Mitchell Hooke, chief executive of the Minerals Council of Australia said.
The tax is scheduled to be introduced in mid 2012 and aims to raise around $7bn in revenue to help fund social programmes and retirement funds.
It has led to concerns that Australia, whose economy relies heavily on mining, would become a less attractive investment option for companies looking to explore for new deposits.
Mining is the lifeblood of the Australian economy, generating the lion’s share of overseas earning.
Minerals export earnings are forecast to increase by 28% in fiscal 2010/11 to around $177bn, according to the government’s own forecast.
PLAYING BLUFF
During a recent Senate inquiry BHP, Rio and Xstrata warned the implications of the tax would have to be included in any future investment decisions to expand in Australia.
The government accused the mining companies of making hollow threats to withhold investments in the country unless future royalties were covered noting recent announcements they made to spend billions of dollars digging more iron ore and coal mines.
Xstrata last week told Reuters it was confident it would proceed with $3bn in new coal mine investments.
The package of over 90 non-binding recommendations are broadly fiscal neutral over the forward estimates, the panel said, and are not expected to impact the government’s plan to return the budget to surplus in 2012/13.
BHP Billiton and Rio Tinto mine iron ore and coal in three Australian states while Xstrata mines coal in two. The three companies are likely to shoulder about 85% of the bill from the new tax.
A further 320 mining companies, showing annual profits of A$50 million ore more, will pay the rest.
“All current and future State and Territory royalties on coal and iron ore should, therefore, be credited and it is imperative that … the states and territories do not have an incentive to increase royalties,” said panel of experts established to make recommendations to the government.
BHP and Rio saw their royalties paid to Western Australia on iron ore increased this year for the first time in four decades.
Western Australia and Queensland, home to many of the world’s biggest collieries, have each reserved the right to increase future royalties.
The government is expected to announce its final tax legislation around May 2011, which may take Tuesday’s recommendations into consideration.
“The (panel) has sought to create an overall package that delivers a sound tax outcome through a combination of industry and government views. This has necessarily meant that no group has secured its full ambition. That is the nature of compromise and co-design,” the panel said in its report.
