All material subject to strictly enforced copyright laws. © 2022 ITR is part of the Euromoney Institutional Investor PLC group.

Gillard should have learnt from Rudd’s mistakes on Australian mining tax

kevin-rudd.jpg

COMMENT: Fortescue Metals Group filed a High Court challenge against the Australian government last week in an attempt to have the mineral resource rent tax (MRRT) declared invalid, but if Prime Minister Julia Gillard had learnt from her predecessor’s mistakes the problem may have been avoided.

The resource super profits tax (RSPT) created under Kevin Rudd’s tenure proved to be a major contributor to his downfall as pressure from the mining industry, including a media campaign run by the Minerals Council of Australia, saw his popularity plummet until he was deposed by Gillard in 2010.

fortescue.jpg

Fortescue’s founder Andrew Forrest has since claimed Rudd had found a way to modify RSPT so as to appease mining industry opposition shortly before he left office.

The main feature of the redesign was to include concessions for capital spending on infrastructure.

However, once Gillard supplanted Rudd it seems her chief concern was garnering the support of the big three mining companies: BHP Billiton, Rio Tinto and Xstrata.

In devising the MRRT, a revised version of the RSPT, Gillard consulted only with the big three mining companies and neglected to involve Fortescue and other mining companies in the discussions.

Forrest told The Australian that the revised MRRT provides for deductibility for the market value of the resource in the ground which provides an enormous capital shelter for the big miners and minimises their tax payable, while hitting the smaller companies.

Deputy Prime Minister Wayne Swan maintains the MRRT will generate A$10.6 billion ($10.7 billion) within three years of its implementation date on July 1 2012, and that the main burden will fall on the big three miners.

However, Fortescue claims MRRT allows the biggest mining companies a deduction on their overall tax liability, based on the book value or market value of their separate coal and iron ore projects as of May 2 2010, while such deductions will not be available to smaller producers.

In its court filing, Fortescue is challenging the MRRT on constitutional grounds, arguing the tax discriminates between the states, curtails their sovereignty and restricts their ability to encourage mining.

julia-gillard.jpg

The High Court case is yet another obstacle for Gillard’s government to overcome in implementing the mining tax and shows the political sway the sector wields in Australia.

It seems Gillard (pictured left) may have underestimated Fortescue’s challenge, and perhaps a wider and more thorough consultation process could have averted the danger now posed by the High Court case.

But the odds are firmly stacked in the government’s favour and whether the High Court defies expectations or not with its decision, MRRT will take effect next week.

Fortescue has made an admirable stand, but it will now need to focus its resources on coping with the significant extra burden of MRRT, as will the rest of Australia’s mining sector, whether they agree with the model or not.

FURTHER READING:

Australia’s mining tax continues to come under fire

Mining tax revenue controversy compounds Gillard’s problems

Australia: Bringing the MRRT to life

More from across our site

Tax professionals have called on the UK government to reconsider its online sales tax as it would affect the economy at the worst time.
Tax professionals have called on companies to act urgently to meet e-invoicing compliance targets as the EU plans to ramp up digitisation.
In the wake of India’s ambitious 25-year plan for economic growth, ITR has partnered with leading tax commentators to discuss what the future will look like for India and for the rest of the world.
But experts cast doubt on HMRC's data and believe COVID-19 would have increased the revenue shortfall.
EY’s plan to separate its auditing and consulting businesses might lessen scrutiny from global regulators, but the brand identity could suffer, say sources.
Multinationals are asking world leaders to put a scale on carbon pricing to tackle climate change at the 48th G7 summit in Germany, from June 26 to 28.
The state secretary told the French press that the country continues to oppose pillar two’s global minimum tax rate following an Ecofin meeting last week.
This week the Biden administration has run into opposition over a proposal for a federal gas tax holiday, while the European Parliament has approved a plan for an EU carbon border mechanism.
12th annual awards announce winners
Businesses need to improve on data management to ensure tax departments become much more integrated, according to Microsoft’s chief digital officer at a KPMG event.
We use cookies to provide a personalized site experience.
By continuing to use & browse the site you agree to our Privacy Policy.
I agree