WA mining tax explained: Why are Rio Tinto and BHP in the crosshairs?
Brendon Grylls seized the WA Nationals’ leadership in August, pledging to make BHP Billiton and Rio Tinto pay more to help the state out of its financial woes.
Why is he targeting the state’s two biggest miners, and how will they make it work?
What is in place now?
BHP Billiton and Rio Tinto both pay a “lease rental” to the WA Government of 25 cents per tonne of iron ore they mine.
Its origins are in the early 1960s, when State Parliament passed legislation to set a rental price for the Mount Goldsworthy project of two shillings and sixpence per tonne of ore mined.
Over time, that became 25 cents per tonne, when the currency was decimalised, and was eventually applied to all projects.
The Department of Mines and Petroleum describes the mining lease fee as “an additional rental providing a mechanism for the Government to recoup some of its investment in infrastructure in the region”.
Of course, it’s not the only tax they pay. They also pay a royalty to WA of 7.5 per cent of the value of their iron ore and face other general business taxes and charges.
Why only BHP and Rio?
Not all iron ore miners pay the rental.
In fact, the only miners that do are BHP, Rio and Cliffs Natural Resources.
That is because it only applies to projects that have been in operation for more than 15 years.
More companies will be impacted in the coming years though as a range of mines began operations in the late 2000s.
However, for the time being the Nationals have chosen to target only BHP and Rio.
What do the Nationals want to change?
Mr Grylls wants to impose a 20-fold increase on the rate of the lease rental, from 25 cents per tonne to $5 per tonne.
They argue the big miners have made a substantial profit from the state and have received a good deal from the fact the 25 cent levy was set at a fixed price, without any form of indexation.
The equivalent of 25 cents in the 1960s is now more than $3, and the Nationals argue the rate should be updated to help WA with its budget situation.
How have the miners reacted?
Angrily. BHP has warned the mere mention of the idea has risked jobs and impacted investment decisions.
Rio argues it also pays more than enough tax, pointing out it has paid $13 billion in royalties to the WA Government since 2006.
The mining lobby, which argues a $5-per-tonne rental fee would make WA the highest-taxed jurisdiction in the world, says it will fight the proposal with a public campaign.
What about the political reaction?
Premier Colin Barnett says it will not happen under his Government, but he has admitted to holding discussions with BHP and Rio about “buying out” the lease fee in favour of an upfront payment.
The miners have rejected that idea.
Labor leader Mark McGowan has said no change will be made without agreement from the miners.
But the Nationals could pressure the major parties if they win the balance of power following the election in March 2017.
How much money would the proposal raise?
The WA Government does not release how much each company pays in lease rental.
But the total money raised from the rental in 2015-16 was $124 million.
Estimates from production levels suggest Cliffs paid about $3 million of that, meaning Rio and BHP handed over approximately $121 million combined.
Had the rate been $5 instead of 25 cents, the lease rental would have raised around $2.4 billion in 2015-16.
But that is subject to change based on production volumes. The companies argue higher costs would result in less mining activity, and the amount of money raised by the tax depends entirely on how much ore is being produced.