Interpac Business and Migration Solutions Melbourne Australia

(October 9, 2010)

THE government's move to review the $50 million profit threshold for its contentious mining tax could benefit scores of mining companies.

But the federal government will not reduce the overall $10.5 billion slug on the industry, analysts have warned.

This is because the Don Argus-led panel overseeing the design of the mineral resources rent tax can only recommend changes that are revenue neutral, even if those changes are considered positive for the broader economy.

Resources Minister Martin Ferguson this week suggested the $50m threshold -- at which the tax kicks in -- could be reviewed, following industry criticism that smaller miners needed to invest every dollar they earned into infrastructure for expansions rather than paying extra tax.

The apparent softening of the government's stance came after Mr Ferguson and Mr Argus, the former BHP Billiton chairman, co-chaired the first consultation meeting of the policy transition group (PTG) in Perth on Thursday.

Fortescue Metals Group chief executive Andrew Forrest, who did not attend Thursday's meetings, yesterday reignited his war of words with the government over the MRRT.

The outspoken Mr Forrest strongly rejected Mr Ferguson's claim that the industry had come to accept that the introduction of the MRRT was inevitable.

"He (Mr Ferguson) would know that miners were very angry (in meetings on Thursday) at the committee's lack of understanding about the industry," he said.

Any move to raise the MRRT threshold beyond $50m, or to change the way the threshold operates, would potentially exempt scores of smaller mining companies from paying the tax, which is forecast to raise $10.5bn in its first two years.

Association of Mining and Exploration Companies chief executive Simon Bennison said yesterday the PTG should not have been handed the role of finding new ways to tax miners if it came to the belief that some aspects of the MRRT needed to be softened because they were unfair or impractical.

Ernst & Young's global mining and metals leader, Mike Elliott, said the Gillard government should consider changing the requirement that any changes made by the policy transition group had to be fully offset. "It may be worth looking at the overall economic benefit," he said. "There may be a cost to the revenue, but it may be for the greater economic good."

It is understood the PTG could recommend increasing the threshold to $100m or beyond, or else it could adopt a phased approach to the threshold, similar to that used in the income tax system.

Under that approach, the tax benefit of the threshold would be unwound gradually as profit increased, rather than in a single step.

The Australian reported this week on industry concerns that, under the PTG's terms of reference, companies exceeding the threshold would pay the tax on their entire profit, both above and below the $50m level.

Under this system, a mining company with a profit of $49m would not be liable to pay the tax, whereas a rival earning $51m would have to pay about $11.5m. This is because the 22.5 per cent effective tax rate would apply to the entire $51m profit.

There are also concerns that the threshold should be indexed to ensure the government's aim of excluding small miners in later years is achieved.

(Source:theAustralian)