You say RSPT, I say MRRT, let’s call the whole thing game on!

Andrew Pegler – 09 July 2010

Rarely does tax wield such an axe. But we’re one PM down and will soon be picking another. Julia’s new ballad to the tax man goes something like this.

For starters the super word has been buried under a few tonnes of iron ore and coal. Ladies and gentlemen, introducing much less combatitive-sounding Mining Resource Rent Tax (MRRT). Sure it’s still a tax but it’s one all parties can live with and, depending on the outcome of the election (Tony wants to bury it), it’ll apply from 1 July 2012.

Whether or not you agree with the idea of a mining tax, the original intent of the RSPT (RIP) was to deliver the citizenry the best possible return for the rapidly growing profits companies make from digging stuff out of our collective dirt that can’t be replaced. The plan was to use this windfall to reduce taxes, increase super contributions and build infrastructure. But then Kevin got it in the neck and the game changed a tad.

Enter the Gillard compromise.

For starters the newer, cuddlier-named tax will only apply to iron ore and coal companies whose profits exceed $50 million a year (there’s about 320 of these guys). The tax rate that will apply to their profits has been dropped from 40% to 30% – less an additional 25% extraction allowance, which means they’ll effectively pay 22.5% tax (i.e. 30% less than the 25% extraction allowance). The tax kicks in on any profits above about 12% (i.e. the government bond rate at the time plus 7%.) The remaining onshore oil and gas miners will now operate under the existing 40% Petroleum Resource Rent Tax. Problem solved for now?

The immediate impact is a $1.5 billion hole in the budget’s first year i.e. mining tax revenue down from $12 billion to $10.5. But this figure is being hotly contested so it may be more. For those of you who pay company tax your rate will go from 30% to 29% not 28% as promised by Kev. Everything else, like super contribution rising from 9% to 12%, stays the same. Pssst, small business owners … you guys will be able to immediately write off assets worth less than $5000 and depreciate your other ones (not buildings sorry) at 30%. Nice.

Dunno about you but this whole mining tax palaver reminds me of the old realpolitik adage that political parties have no permanent friends or enemies only a permanent interest in being re-elected.

Stay gold readers!