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Australian Mining Royalty Dispute Kicks Off

May 2011 - Tax & Private Client. Legal Developments by Hassans.

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With Western Australia's (WA) state budget last week came the surprise announcement that it will be increasing iron ore royalties from next year.

The rate on iron ore fines has been raised from 5.625% to 6.5% from July 2012 and then up to 7.5% the following year. It has been estimated that this will bring in additional revenue of approximately AUD2bn (USD2.11bn) to the state over four years.

This has caused considerable concern with the iron ore companies, which have seen a serious drop in their value, and with the federal government who had promised resources companies that state royalties would be deducted from the Minerals Resources Rent Tax (MRRT).

Back in March Wayne Swan, Australian Treasurer, whilst agreeing with the recommendations of the Policy Transition Group, said that the Mineral Resource Rent Tax was a more efficient way to provide Australians with a return on their mineral wealth and that a green light should not be given to the states to increase their royalties.

He has admitted that the news came as a surprise to the government, however he has also suggested that Colin Barnett, Western Australia Premier, has kicked an own goal and that WA's revenue forecasts are completely unrealistic.

Under the Grants Commission rules and approaches he's likely to end up with less revenue as a result of this. We recognize the special case of Western Australia in terms of the distribution of GST revenue, which is why we've got this review going on at the moment but at the moment under their approach Mr Barnett will end up with less revenue.

Swan says that the MRRT revenue is being put in place so that the government can invest in infrastructure in places like Western Australia, give a company tax cut to small business and a cut in the corporate rate of tax.

These are really important initiatives for a state like Western Australia which is crying out for additional Commonwealth investment in infrastructure. So what Mr Barnett has done is increase his own revenues but through the GST formula most of that increase, or all of it, will go to other states.

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