Mining and Heavy Industries

GST makes royalties pointless, Minerals Council says

The Minerals Council of Australia has suggested Western Australia would be better off not charging royalties to iron ore miners, in a stinging submission to the Productivity Commission’s review into the Commonwealth’s horizontal fiscal equalisation mechanism.

The assessment is part of an ongoing campaign by the state and the mining industry, against the current GST tax distribution system, which is supposedly designed to deliver ‘horizontal fiscal equalisation’ across the states and territories.

WA’s impressive royalties income means it receives a significantly lower share of the GST, compared to the amount it contributes.

The horizontal fiscal equalisation scheme is currently under review by Australia’s Productivity Commission, and the Minerals Council of Australia – which represents big miners like Fortescue, Rio Tinto and BHP Billiton – didn’t hold back in its submission, released late last week.

“There is a lack of clarity about the objectives of current arrangements, there is manifest unfairness in the outcomes the system is delivering and worse still, the current system is providing state and territory governments with perverse incentives to turn away productive investment rather than develop their human and natural resources,” the Council said.

“Due to its high value and share of Australia’s iron ore production, Western Australia can lose more GST from the assessment of its iron ore revenue than it actually raises in royalties when the GST funding pool grows at a sufficient rate.”

The Minerals Council is urging the Productivity Commission to conclude that, in essence, the GST system is simply not working.

“The GST distribution system assumes that all states will develop their mineral resources with equal vigour,” the Council’s submission asserts.

“This is plainly not the case in practice.

“Victoria bans exploration and mining for uranium, as well as the exploration and production of conventional and unconventional gas. It is also trying to phase out brown coal generation. New South Wales’ approach is not much better, though much less overt. On the other hand, Western Australia, South Australian and Queensland are trying to develop their resources.

“At the risk of over-simplification, we have proactive states and we have obstructionist states.

“The problem for the pro-active states is that as soon as the royalty revenues start to flow, their GST receipts start to fall. Meanwhile, in the obstructionist states, their share of GST distributions starts to rise.”

All 49 initial submissions to the Productivity Commission’s review are available on the Commission’s website.

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