Resource giants shriek about what they pay. Here's what they get.
THE mining industry, in its furious offensive against the proposed resource rent tax, is playing the old magician's trick of getting you to stare at their right hand, while ignoring what the left is doing. The tax they pay is their right hand, the benefits they receive in return is their left.
Don't be fooled. Any fair discussion of resources tax must include not only the tax side of the equation, but also the billions of dollars of benefits the industry receives each year, courtesy of the Australian taxpayer.
Let's begin with fuel. You and I pay 38? per litre in excise when we fill up at a petrol station. BHP Billiton and Rio Tinto also pay tax on their fuel, but the government gives nearly all of it back through the Fuel Tax Credits program. The mining industry is the largest beneficiary of this scheme (which is available to a range of businesses), receiving $1.7 billion per year in credits.
Next, consider the generous tax breaks available for mining investment. If I decide to start up a factory, I'm not allowed to claim the cost of equipment as a business expense in the first year I have to depreciate the equipment over time, based on how long the equipment is expected to last. But if I'm a mining company, I can deduct the full cost of exploration immediately, or even 150 per cent of the cost of exploration in some cases.
A special tax amendment the petroleum lobby snuck through in 2002 to override explicit determinations by the Commissioner of Taxation gives further preferential treatment to oil and gas assets. So, a petroleum company gets to assume for tax purposes that an oil rig, for example, will only last for 20 years, even if in truth it is likely to be productive for much longer.
These tax breaks on exploration and equipment cost taxpayers more than $1 billion per year. The Henry review recommended we get rid of them.
Instead of adopting that sensible recommendation, the government is now proposing an additional $500 million per year in direct rebates to encourage exploration.
The mining industry pays nothing for its greenhouse pollution, either. In 2006, the 65 million tonnes of pollution attributable to the mining sector had an implicit cost of $1.3 billion, at a very conservative cost of carbon of $20 per tonne.
Subsidised fuel and no price on pollution are a bad combination. Australian Bureau of Statistics figures show that, while most industries have become more energy efficient over the past three decades, the mining industry has become less so. It takes twice the energy to get a dollar's worth of minerals out of the ground today as it did 30 years ago. This is a trend we should seek to reverse, not reward.
And then there are direct government services. Geoscience Australia's annual budget is $130 million, much of which goes to providing free data and services to the mining industry. The CSIRO and various government research centres chip in another $130 million per year in benefits to the industry. And for the research the miners have to do themselves, they get $160 million back per year in the form of research and development tax concessions.
A billion or two for fuel, a billion for exploration, a billion for free pollution and a couple of hundred million for subsidised science . . . pretty soon we're talking real money.
And that's before we've even begun to talk about government-provided roads, rail, ports, electricity networks and other infrastructure.
Mining is different from most other industries because it directly accesses publicly owned, non-renewable resources. It is appropriate that it pay for this privileged access, over and above its fair share of company tax. In light of the $4 billion to $5 billion in benefits the mining industry receives each year from the Australian taxpayer, the government's proposed resource rent tax starts to look modest.
Sure, your average African or South American nation might tax mining companies less, but they also offer far less government support than Australia does.
If the government's proposal can be criticised at all, it is that it doesn't go far enough. More of the existing fossil fuel subsidies should be dismantled, as recommended by the Henry review (and as Australia has committed to the G20 to do). And the government plans to return far too much of the revenue raised by the resources tax to the mining industry in the form of additional exploration rebates and mining industry infrastructure, when we should be using the additional revenue to help us build a clean, sustainable economy, including investment in renewable energy and clean transport.
So don't be snowed by the big miners' shrieks about sovereign risk driving them out of Australia. The biggest risk is that we continue to subsidise mining operations that aren't paying a fair return for their use of public resources and taxpayer dollars.
Frequently Asked Questions about this Article…
What taxpayer-funded subsidies and benefits do Australian mining companies receive?
Australian miners receive a range of taxpayer-funded supports: about $1.7 billion a year in fuel tax credits, more than $1 billion a year in tax breaks for exploration and equipment, an implicit unpaid pollution cost estimated at about $1.3 billion (using $20/tonne on 65 million tonnes in 2006), roughly $130 million a year from Geoscience Australia in free data/services, another ~$130 million from CSIRO and government research centres, and about $160 million a year back via R&D tax concessions — all adding up to roughly $4–5 billion per year before counting public roads, rail, ports and electricity networks.
What are fuel tax credits and how much do miners like BHP and Rio Tinto get back?
Fuel tax credits refund most or all of the fuel excise that mining companies pay. While retail customers pay around 38c per litre in excise, major miners such as BHP Billiton and Rio Tinto pay excise but receive nearly all of it back under the Fuel Tax Credits program. The mining industry is the largest beneficiary of the scheme, receiving around $1.7 billion per year in credits.
What exploration tax breaks do mining companies get and what changes has the government proposed?
Mining companies can deduct exploration and certain equipment costs much more generously than other businesses — in some cases claiming the full cost immediately or even 150% of exploration expenses. A 2002 tax amendment also gives petroleum assets preferential depreciation treatment (for example assuming a 20‑year life for tax purposes). The article notes the Henry review recommended removing many of these breaks, but the government was proposing an additional ~$500 million per year in direct rebates to encourage exploration.
Do mining companies pay for the environmental cost of their greenhouse pollution?
According to the article, mining pays nothing explicit for its greenhouse pollution. Using a conservative price of $20 per tonne, the mining sector’s 65 million tonnes of pollution in 2006 implies an implicit cost of about $1.3 billion that isn’t paid by miners. The combination of subsidised fuel and no price on pollution can discourage energy efficiency.
What free or subsidised government science and data do miners use?
Miners benefit from government-run science and data services. Geoscience Australia has an annual budget of about $130 million much of which provides free data and services to the industry. The CSIRO and other government research centres contribute another ~$130 million a year in benefits, and miners receive about $160 million a year back through research and development tax concessions.
How big are the total benefits to the mining industry compared with the proposed resource rent tax?
The article estimates the mining industry receives roughly $4–5 billion a year in combined benefits from fuel credits, tax breaks, unpaid pollution costs, subsidised science and infrastructure. Against that backdrop the government’s proposed resource rent tax looks modest to the author, especially since some of the tax revenue was planned to be returned to the industry in exploration rebates and infrastructure.
How has energy efficiency in the mining industry changed and why should investors care?
Australian Bureau of Statistics figures cited in the article show mining has become less energy efficient over the last 30 years — it now takes about twice the energy to extract a dollar’s worth of minerals compared with three decades ago. For everyday investors, that trend matters because subsidising energy and not pricing pollution can lock in higher operating costs, environmental risk and regulatory pressure over time.
What does the article say should be done with revenue from a resources or rent tax?
The article argues that rather than returning much of the revenue to the mining sector through extra exploration rebates and industry infrastructure, the government should use resource tax revenue to dismantle fossil‑fuel subsidies and invest in building a clean, sustainable economy — including funding renewable energy and clean transport — as recommended by the Henry review and Australia’s G20 commitments.
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