Mining boom undertaxed, says ANZ
Successive governments have failed to effectively tax Australia’s mining boom, with measures such as the controversial minerals resource rent tax providing little revenue, according to an analysis by ANZ economists.
And while the ANZ paper predicts a boom in mineral production – with Australia set to become the world’s leading exporter of liquefied natural gas – it also tips a sharp fall in mining investment, with substantial job losses.
As production ramps up the ANZ economists argue Australia is now entering ”phase three” of the mining boom. This follows phase one (surging commodity prices) and phase two, characterised by booming mining investment.
”Despite expectations to the contrary, [resource rent taxes] have not been an important source of revenue during phase one and phase two of the mining boom and, therefore, will not be a large source of volatility in the coming phase,” the ANZ paper said.
”The MRRT only raised $200 million [or 5 per cent of the amount originally estimated] in 2012-13 and is estimated to raise just $100 million in net terms in 2013-14. The current government is attempting to remove the MRRT altogether.”
The petroleum resource rent tax, introduced in 1988, is forecast to raise just $2 billion. The Commonwealth’s total revenue base is $380 billion.
The mining tax, which the Abbott government pledged to abolish, is currently before the Senate.
”The third phase of the mining boom, the production phase, will bring significant benefits,” said the paper.
”Higher commodity export volumes will boost growth, while increased export revenue will improve Australia’s external accounts. Notwithstanding high rates of foreign ownership, the lift in profits will flow through to the economy via higher dividend payments, higher company taxation, and increased royalties.”
LNG would become the glamour export in coming years, ANZ tipped, with Australia passing Qatar as the world’s largest exporter of LNG in 2019. In 2013, Australia exported 23 million tonnes of LNG worth $15 billion; by 2020, it would be 88 million tonnes worth $67 billion.
But iron ore will remain the nation’s biggest mineral export despite falling prices and a lower exchange rate. In 2012, Australia exported 490 million tonnes of iron ore worth $55 billion; by 2020, it would be 870 million tonnes worth $75 billion.
Coal, the third largest mineral export, ”looks set for more modest growth, averaging over 5 per cent per annum over the next seven years”.
The paper also tipped a sharp decline in mining investment as new facilities and projects reached completion, but said this would be offset by the increase in mining exports.
Nevertheless, ”although higher resource exports will provide a solid offset to the drag from mining investment, the non-mining economy will need to pick up substantially for overall growth to recover.”
Mining profits would be flat in 2014, rise 14 per cent in 2015 and 10 per cent in 2016, tipped ANZ. Company tax revenues would grow broadly in line with profits, particularly post-2016 from the LNG sector. Because mining production was less labour-intensive than mining investment, jobs were certain to be shed in the sector, said the paper. ”At most” a net 50 to 70 thousand jobs would be shed over the next few years.
The increase in exports would improve Australia’s trade balance from a deficit of 1.5 per cent of GDP in 2012 to a surplus of 2 per cent of GDP over the next three years, lifting the current account deficit to 1.5 per cent of GDP. ”This should help solidify Australia’s AAA credit rating.”
There would be no significant new net demand for the Australian dollar until at least 2018, the paper said.