Government agrees to mining tax compromise but backs away from using carbon price to drive broader tax reform

The Government has agreed to a major compromise with the resources sector over its mining rent tax, but Treasurer Wayne Swan has backed away from the idea of using the Government’s new carbon pricing regime to drive major income tax and welfare reform.

The Government has accepted 98 recommendations from the industry consultative committee examining the mining resources rent tax (MRRT), including a deal that will see the Government reimburse miners if state-based resources royalty rates are increased.

But Swan’s assertion that the Federal Government will put pressure on the states to keep royalties flat by potentially slashing their GST payments has been met with anger by West Australian Liberal Premier Colin Barnett, who has warned Swan not to use “veiled threats” against his government.

While Barnett says there are no plans to raise royalties in the short-term, the State Government could look to push rates up in the future.

“The Federal Government I think is trying to say no you can’t do that, you can’t charge a proper price for your minerals, because you might upset our MRRT, and if you do we’re going to take away further GST or cut funding,” Barnett said.

“Well, bring it on, because WA won’t be intimidated by the likes of Wayne Swan.”

CPA Australia’s head of business and policy Paul Drum says his organisation welcomed the Government’s acceptance of the committee’s recommendations, but warned the issue still has some way to go.

“The state royalties issue is not over the line yet. There is a lot of heavy lifting to be done and we’d note that it requires consensus from COAG,” Drum says, adding that COAG has struggled to get consensus on far more minor matters in the past.

He says a successful resolution is crucial not just to the mining sector, but to the wider economy.

“The resources sector was critical in keeping Australia from recession during the global downturn and will continue to be an engine for continued economic growth.”

Other victories won by the mining sector include the introduction of a system by which the mining tax will be phased in, starting when a miner earns more than $50 million and not hitting the full rate of 30% until a profit of $100 million is made.

The taxing point for minerals has also been changed. It will be after minerals have been extracted, but before they have been processed (and are therefore more valuable).

While BHP Billiton and Rio Tinto have flagged support for the new deal, one of the most vocal critics of the tax, Fortescue Metals Group boss Andrew Forrest, remains up in arms.

“It’s a tax designed by multinationals for other people to pay,” he said from Hong Kong.

“Policy should be broad ranging, it should be fair and it should be based on the constitution of being equal among states and equal among companies. That hasn’t happened here. BHP has literally written a tax for everyone else to pay,” he said.

Meanwhile, Swan has also poured cold water on suggestions from the Government’s climate change advisor Ross Garnaut that the new carbon pricing regime could be used to drive tax reforms suggested by the Henry Review.

Last week, Garnaut suggested the proceeds of carbon pricing could be used to drive personal income tax cuts – including the establishment of a two-tier personal income tax regime – and welfare reform as a way of compensating households.

But while Swan said the Government could look at personal income tax cuts prior to next year’s introduction of a carbon price, he says the Government would not pursue Henry’s reforms.

“The two-tiered rate that was put forward in the Henry report… actually causes increases in taxation for some middle-income groups and some low-income earners. So I said that is not necessarily ideally the way to go,” the Treasurer said yesterday.

Paul Drum says that while CPA Australia isn’t too worried about exactly how many tiers Australia’s personal income tax regime has, it is promising to hear the Treasurer talking about tax cuts.

“Getting our personal tax rates down should be the target.”

But he says the Government should not ignore the idea that the carbon price – and even the GST – can form part of a platform for holistic tax reform ahead of the tax forum later this year.

“They all go hand in glove and they need to be looked at together, not as separate line items in the revenue account.”