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The Political Economy of
Australia’s Proposed Resource
Rent Taxation Scheme
Hope Ashiabor
Moira Saccasan
Australia’s Mining Sector
 In 2006-07 the Australia world rank (production)
for iron ore was 3rd, black coal was 4th, and for
liquefied natural gas was 5th. It is the world’s
largest exporter of alumina, black coal, iron ore,
lead and zinc.
 In 2006-07, resource exports (minerals and
petroleum) accounted for 49% of total goods
and services exports, produced over 8% of GDP
and 63% of merchandise export earnings.
An Australian iron ore mine
An Australian iron ore mine
 It has a life of about 30 years at the
current rate of extraction.
 It is one of Australia’s resources.
 Using our current accounting standards, it
has a measurable value of some
magnitude.
 What will its value be at the end of the 30
years?
An Australian iron ore mine
• At the end of 30 years it will just be a very
big hole in the ground.
• What will its value be?
• Using our current accounting standards, it
will not have any value.
• It is in the desert, and cannot be used for
farming.
• It is the inheritance of the next generation.
The Brundtland report
 (We are)….. “drawing too heavily and too
quickly, on already overdrawn
environmental resource accounts to be
affordable far into the future without
bankrupting those accounts.”
 “We borrow environmental capital from
future generations with no intention or
prospect of repaying”
Legacies for Future Generations
Legacies for Future Generations
Legacies for Future Generations
Legacies for Future Generations
Legacies for Future Generations
Legacies for Future Generations
Contemporary Challenges
 The pent-up demand for non renewable
mineral resources has created boom
conditions for industries in the mining
sectors.
 How are resource exporting countries
going to ensure that overall economies
and future generations reap the dividends
of these windfall profits?
Royalty Arrangements
 Rents from the extraction of non-renewable
resources are typically collected as royalties.
 By virtue of its federal constitutional structure,
the collection of royalties has historically been a
matter within the jurisdictional competence of
the States.
 Information from Australian Treasury estimates
shows:
Royalty Arrangements
(a)Mineral profits before tax and royalties are measured using income less an allowance for corporate capital.
Source: Australian Treasury estimates
The Review into Australia’s Future
Tax System
 (The Henry Review) – set up on 13 May 2008
 Mandate:
 To undertake a comprehensive review into Australia's
tax system
 To propose the framework of a robust tax structure to
enable Australia to deal with the social, economic and
environmental challenges of the 21st century.
 Scope:
 Review federal and State taxes, (except the GST),
and interactions with the transfer system.
The Review into Australia’s Future
Tax System
 December 2009: the Review Panel delivered its
final report to the Treasurer.
 One of its recommendations was that the existing
framework for the taxation of resources should be
reformed as it was inefficient.
 That resources be subject to a rent based tax with an
allowance for corporate capital.
 2 May 2010: the Government released the final
report and indicated its initial response to it.
Resources Super Profits Tax
 Announced on 2 May 2010, one week before
the Federal budget.
 Levied at 40% on the realised value of resource
deposits.
 Allowance rate set at 10 year government bond
rate for carry forward losses.
 Would apply to all mining and petroleum
projects, except Petroleum Resource Rent Tax
(PRRT) projects.
 Brown coal was to be further considered.
Resources Super Profits Tax
How would the revenues be used?
 One third to directly assist resources sector with
a Resource State Infrastructure fund.
 One third to promote growth across the
economy addressing the risk of “two speed
economy”. Cutting company tax rate to 28%.
 One third for superannuation measures - saving
for the future.
Stakeholder Responses - the
Mining Sector
 Cried foul – alleging there was no prior
consultation with the sector in the lead up to the
announcement.
 Government convened a consultation panel to
coincide with its announcement of the RSPT.
 Miners hit back with a $100m advertising
campaign against the proposed tax in the lead
up to the Federal election (which was just a few
weeks away).
Stakeholder Responses - the Union
Movement
 The Australian Council of Trade Unions
endorsed the tax indicating that it would boost
the economy and create jobs.
They recommended further negotiations and
discussion with industry.
 A debate was organised between the secretary
of the Australian Workers Union and the
chairman of a large mining company “Resource
Super Profits Tax – policy reform or tax grab?”
Stakeholder Responses Government & the General Public
The Government refused to:
 negotiate the 40% rate of the tax
 move from the uplift factor of the 10 year government
bond rate.
Started its own media campaign.
A confused public was evenly divided on the issue:
 some believing that it would cause a loss of jobs;
 others believing the mining sector was trying to
escape paying its way.
Removal of Prime Minister
 On 24 June 2010 the Prime Minister, Kevin
Rudd was removed from office and replaced by
his Deputy, Julia Gillard, who immediately called
a truce with the mining companies.
 The advertising campaigns were halted while
further negotiations took place with
representatives from BHP, Rio Tinto and Xstrata
mining companies.
Minerals Resource Rent Tax
 On 2 July 2010, the MRRT was announced.
It will apply only to mined iron ore and coal.
 All other minerals are excluded.
 The Petroleum Resources Rent Tax was to be
extended to all Australian onshore and offshore
oil and gas projects.
 Tax rate is 30%, uplift factor for losses is long
term bond rate plus 7%.
Minerals Resource Rent Tax
 Small and mid tier mining groups were excluded
from the MRRT negotiations:
 Were dissatisfied with the outcome;
 Argued that the tax would have a much more
adverse impact on them than on the larger miners.
 3 August 2010: the Policy Transition Group
(PTG) was set up to look into their concerns.
Minerals Resource Rent Tax
 The MRRT froze the rate at which royalties
would be deductible to those rates in place on 2
May 2010.
 The negotiations did not resolve issues relating
to royalties paid to the States.
 Some States resorted to opportunistic increases
in their royalty regimes.
 The three major mining companies involved in
the MRRT negotiations have threatened to
resume their anti-government advertising
campaign, to force government to concede to
their demands.
Lessons and Implications for the
Introduction of Environmental
Taxes
Questions for Reflection
 Where resource rent tax regimes have been
successfully implemented, (Canada, Norway)
how were they introduced?
 How did the extractive resource industries in
those countries respond to the new regime?
 To what extent have revenues from resource
rents been used to address intergenerational
equity and sustainability issues in other
jurisdictions?