Mining tax ratios are now at or above the longer term average as Australia embarks on a new tax reform process. This is one of the key findings by Chris Richardson, one of Australia’s best known economists, in a new publication released by the Minerals Council of Australia (MCA) at the start of its 2015 Tax Conference.
In Mining tax ratios revisited, Richardson unpacks a decade of mining tax date data and challenges some misconceptions about Australia’s recent tax experience.

He shows that the industry’s tax and royalty burden didn’t fall far during the mining boom and hasn’t been falling over recent years. Indeed, the burden has risen as commodity prices and profits have fallen and states have increased royalty rates. As a result, drawing on official data and the latest MCA tax survey, Richardson calculates a mining tax ratio of 53 per cent in 2012-13 (above the average of 51% since the turn of the century) – see Chart 12 (p. 37). And further falls in commodity prices since then mean this ratio will have risen even higher.

Richardson also revisits the official figures that received most coverage in the tax dispute of 2010. He writes that while Deloitte Access Economics can almost exactly match the Treasury figuring in earlier years, the falls in tax ratios estimated for 2007-08 and 2008-09 in particular “seem over the top”. Specifically, the official estimate for mining profits in 2008-09 is hard to replicate. “It looks as is mining profits never came close to hitting the $91 billion that Treasury estimated for 2008-09” (p. 34).

Richardson provides a corrective to those who still view the Resource Super Profits Tax (RSPT) – the original mining tax – as some form of tax ‘holy grail’ and a boon to the Commonwealth Budget and the taxpayer. Largely because it refunded state royalties to companies, in good times and in bad, the original super profits tax “would have been super expensive it had been implemented as proposed in May 2010 … the RSPT would have cost Commonwealth revenue billions of dollars” (p. 39).

Richardson makes a point of highlighting why royalties should be considered part of the tax contribution from miners. The economic impact is the same. The purpose – to allow the community a return on the use of its raw materials – is the same (pp. 26-27).

He also explains why tax ratios that rely on concepts other than “taxable income” to compare industry tax payments (measures such as Gross Operating Surplus that do not allow for depreciation costs) result in wrong-headed conclusions for a capital-intensive sector like mining (p, 8 and section 5).

He writes: “So how can some commentators claim miners pay less than their share of national profits? Because they aren’t comparing apples-with-apples. Miners have just invested a trillion dollars in new mines and associated infrastructure. The benefits of that to Australians will last for generations. But that also means measures of profits, which don’t allow for depreciation costs are more skewed than they have ever been. Accordingly, comparing tax paid against measures other than taxable income (and especially against measures that don’t allow for depreciation costs in Australia’s most capital-intensive sector) will mislead – badly.”

Looking ahead to the tax reform debate of 2015, Richardson (pp. 8-9) observes: “Just as an army marches on its stomach, good policy is reliant on good data.  … And, in turn, good data – along with good process and appropriate consultation – will help ensure Australia has a meaningful and much needed debate on tax reform in 2015.”
Mining tax ratios revisited is available at: http://bit.ly/1BqjcWT