The initial proposal for the introduction of a Resource Super Profit Tax (RSPT) first and then of the currently debated Mineral Resource Rent Tax (MRRT) created a critical need for rigorous and independent modelling of their financial impact at the project level.
The CET has undertaken to carry out such modelling in the case of small to mid-size iron ore mines and to publish the relevant results and policy advice.
Two models have since been developed and published. The first was designed to determine the likely increase in total taxation (i.e. corporate income tax + Net MRRT + Royalties) under various prices and cost scenarios. It, not surprisingly proved that total taxation would increase by several percentages under a range of currently realistic scenarios.
The second, based on the iron ore mine development example provided by the Commonwealth in their MRRT legislation Exposure Draft and Explanatory Material, indicates that there may be significant differences between the Net MRRT and consequently the total level of taxation paid by projects which existed before 2 May 2010 (when the MRRT was first announced) and those that will start after the introduction of the MRRT on 1 July 2012. This lack of competitive neutrality is due to the fact that the owners of pre 2 May 2010 projects may select the market value of their projects as at 2 May 2010 as their starting base. As this market value is largely represented by the value of resources and large multi-national, multi-project companies hold the lion share of Australia’s iron ore resources, the MRRT legislation, at present, not only favours the existing projects but also reinforces the major producers’ oligopoly.
Because of lack of independent MRRT modelling in the public arena, CET’s models have been of great interest to industry lobbyists and policy makers alike, were tabled in Parliament and contributed to the small miners winning minor concessions to ameliorate the situation.
Continued advice will be provided during the process of legislating for the MRRT and subsequently to industry to set their strategies and systems as necessary.