Article – WA no longer world’s best place for miners, hammered by royalties and taxes26 March 2015
4 March 2015
Sydney Morning Herald
Western Australia has lost its world No.1 ranking for mining investment, with lobby groups pointing the finger at hefty royalty payments and taxes that can gobble as much as 47 per cent of mining companies’ profits.
The Fraser Institute’s recent survey of mining companies showed Western Australia slipped to No. 5 last year from being the world’s most desirable mining jurisdiction based on investment attractiveness, factoring in perceptions of policies and geological potential. Finland is now No. 1, with Saskatchewan, Nevada and Manitoba placing ahead of WA. Queensland ranks 27th on the list, behind the African nations of Namibia and Botswana.
The average ranking of Australia’s states and the Northern Territory fell to 34 from 26 when ranked among 122 mining jurisdictions in the annual survey of 485 global mining chiefs, released last week.
The impact of royalty payments on miners’ profits last year was a likely reason that Australia was seen as a less-attractive destination for mining investment, said Minerals Council of Australia chief executive Brendan Pearson. The “stalemate in the political process through the Senate” as well as the growing “tax burden” on mining companies also weighed on investors’ minds, he said.
The commodity price of key exports took a hit in the past year with the price of iron ore for delivery to the Chinese port of Qingdao slipping 48 per cent to the present $US62.24 a tonne, down from an April high of $US119.82. Copper prices have fallen 18 per cent since July.
Mr Pearson said Australia was a comparatively high-tax jurisdiction despite the abolition of the Minerals Resource Rent Tax and the carbon tax, pointing to recent MCA analysis that showed 47.1 per cent of mining companies’ profits are paid in tax or royalties.
While royalty payments are compensation for the use of a state’s resources rather than a tax, the MCA frequently lumps royalties in with corporate tax in its analysis.
Mr Pearson said royalties tend to form a higher share of profits when commodity prices fall because they are levied on revenues rather than profits and as such, aren’t as cyclical.
“As commodity prices come down, royalties don’t adjust, they are progressive in that sense so the tax ratio [including corporate tax] increases,” he said.
“That does put us towards the top of minerals taxation around the world… and that correlation may help explain some of the survey responses.”
It came as the MCA criticised Labor’s plans to crack down on tax avoidance by multinationals, arguing it could deter investment.
Chamber of Minerals and Energy of Western Australia manager – economics and tax Shannon Burdeu said the state’s royalty system may discourage investment during a downturn but provided an upside when prices were higher.
The West Australian royalty system is designed to capture 10 per cent of the “mine head value” of a mineral, which translates to a different royalty rate depending on how much processing the mineral requires.
“Our royalties are not worked out on profit they are worked out on value, so the volume and the price of the commodity,” Ms Burdeu said.
“As we are exporting more, we are at record iron ore export levels, and prices are lower that means the percentage of royalties paid by companies continues to increase as a share of their overall profit.”
WA Premier Colin Barnett and Minister for Mines and Petroleum Bill Marmion are looking at review into the royalty system and a government decision is expected within weeks.
Ms Burdeu said the CME wasn’t recommending any changes to the current system despite the recent slump in commodity prices the system has proved to be “stable and reliable” for the last three decades and any increase in royalties would deter investment.
“There is no justification for any increase across the royalty system for any commodity,” she said.
“Any changes to the system would have a significant detrimental impact to future investment in the state’s resources sector. The review was first announced in 2012 and is still yet to be decided upon so when you have a review going on for three years that creates uncertainty in the sector and can impact investment.”
Western Australia slipped to 10th from sixth place in the Canadian think tank survey’s policy perception index and also fell in other rankings including geological potential and taxation.
Mr Marmion said the Department of Mines and Petroleum was analysing the report.
“The fact that Western Australia is one of the top five jurisdictions for investment attractiveness is an indication of our reputation as a desirable global destination for investment,” he said in a statement.
A year ago, the Department put out a news release spruiking the state’s placement in the survey when it lead the world.
“There are always improvements that can be made and we will continue to work with our stakeholders to ensure we continue to have a strong resources industry into the future,” Mr Marmion said.
The Northern Territory and all other states except for South Australia ranked lower than in 2013, with Victoria deemed the least-attractive mining jurisdiction in Australia to invest. The state was hit hard by scores in environmental regulation and protected areas.
Courtesy of the Sydney Morning Herald