Some Resource Tax Reality

Back to News

rio tinto minings 420 x 259

Given the polarizing debate about resource rent taxes over the past 21/2 years a recent Goldman Sachs research report on the sector’s taxes globally helps provide a useful context for the local debate.

Goldman’s analysts were looking at mining taxes in terms of the threat posed by growing resource nationalism to miners. Their key premise is that there is a material risk that countries which currently have tax takes below the global averages will increase their taxes on miners and it also says there is some risk that mining royalties will close in on those imposed on oil, where the average royalty differential is 15% higher.

Within the data supporting the analysis there is a comparison of royalty rates and other taxes within all the major mining jurisdictions that does help assess where Australia’s taxes sit within the global resources sector.

The controversial and disappointingly low revenue generating Minerals Resource Rent tax, applies to iron ore and coal. While iron ore has rebounded from last year’s depths of below $US90 a tonne to just above $US140, and coal prices are also significantly off their lows (although the recovery hasn’t been as significant) the various credits within the tax make it unlikely it will provide any meaningful revenue in the near term and salvage Wayne Swan’s recently-abandoned surplus.

With China’s economy lifting on the back of 20% plus growth in infrastructure spending and more stable property markets the outlook for commodity prices is more optimistic than it was in the latter stages of 2012.

It is unlikely, however, that they will return to their bubble-like highs and probable that, even if the current prices are sustained, that the MRRT will produce only modest revenue into the medium term.

Overall, the average global royalty rate is 3.9%. The average rate in Australia is 5.6%. The average total tax take around the world is about 30%. Australia’s is about 42%. The Philippines, Ghana, Zambia and India have higher overall tax rates but the Australian “take” is in line (albeit slightly higher) with similar developed economies like Canada and the US.

On iron ore, the Goldman research shows that Australian royalty rates average between 6.5% and 7.5%. While the global average royalty rate is 7.7%, our biggest competitor, Brazil, applies an average royalty of 4%.

For coal the average royalty rate globally is 5.9%. In Australia it ranges from 7% to 12.5%. South Africa’s average rate is 5%. Brazil’s is 2%, the US between 8% and 12.5% and Indonesia, a growing producer, 13.5%.

That would suggest that, even without the MRRT, the Australian iron ore and coal producers are at the upper end of the global resource royalty and overall tax scales.

The MRRT, of course, was designed as a “super profits” tax and given that the resource sector is shifting from price-driven profitability to volume and cost-driven profitability the mining sector is unlikely to be generating super profits any time soon.

State-based royalties are mainly volume-driven, so the new era is likely to see the absolute revenues generated from the sector continue to rise, even if most of that growth doesn’t make its way to Canberra.

The big resource companies, like BHP Billiton and Rio Tinto do of course, operate globally and they do face the risk that those jurisdictions with below-average tax takes will seek to push them up towards or beyond the global averages despite the fact that most of the lower tax regimes are in higher-risk environments. The Goldman analysis found that the tax takes didn’t correlate with risk.

Optima Partners offers support to all businesses. Whatever your requirements

For more information on how Optima Partners’ services can help your business, contact the team at info@optimapartners.com.au for a consultation.

Latest News

SMSF property investment: A comprehensive guide
For many investors, a popular way to invest directly in residential or commercial property is...
Super tax still on the table after first parliament session
The first sitting fortnight of the 48th Federal Parliament shed little light on the fate...
Capital gains tax in Australia: what you need to know before you sell assets
Capital gains tax (CGT) in Australia applies when you sell certain assets. Understanding the consequence...
Key Dates – August 2025
August 11: Q4 (April–June) activity statements lodged electronically – final date for lodgement and payment....
Small business tax deductions in Australia: what you can and can’t claim
The small business sector is the backbone of the Australian economy, representing over 95% of...
Important changes for FY 2025-26
Recent tax changes will affect how businesses manage cash flow, debt and compliance obligations. In...
Key Dates – July 2025
July 1: Beginning of 2025-26 financial year. July 21: Lodgement and payment of June 2025...
ATO third-party data collection: implications for taxpayers
As the Australian Taxation Office (ATO) expands its use of data-matching technology, businesses and individuals...
Succession planning in ATO spotlight
Wealthy privately-owned groups have seen an increase in unexpected tax consequences as the ATO firms...
Tax misinformation: CPA warns against AI and influencers
Taxpayers are increasingly turning to unreliable sources for tax advice as the 2024-25 financial year...