Mining tax widely panned

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The government’s Minerals Resource Rent Tax (MRRT) is coming in for increased criticism, including former prime minister Kevin Rudd.

The mining tax has collected just $126 million in its first six months, despite being forecast to raise $2 billion in its first year. Now the former prime minister has distanced himself from its implementation, suggesting the world’s greatest treasurer, Wayne Swan was its architect, and Mr Rudd just supported him.

Mr Rudd also suggested that after he was deposed by Julia Gillard, Ms Gillard and Mr Swan watered down the tax, hence the reason why it hasn’t raised much cash. Originally the tax (formerly known as the Resources Super Profits Tax) was designed to cover all commodity products and was much stricter in terms of allowances mining companies could claim.

Under the new MRRT, only coal and iron ore are covered, and mining companies are allowed to claim capital investment as well as some other deductions, as well as all current and future state-based royalties. The MRRT was also agreed with the biggest miners, BHP Billiton (BHP.AX), Rio Tinto Limited (RIO.AX) and Xstrata.

With iron ore and coal prices slumping, the profits of our miners has fallen significantly, despite ramping up production. Along with the deductions they can claim, iron ore and coal miners have therefore paid very little taxes under the MRRT. Fortescue Metals Group (FMG.AX) has even stated several times that it will won’t pay and doesn’t anticipate making any payments under the MRRT.

Independent MP Rob Oakeshott has told ABC Radio that he feels duped by the government over the design of its mining tax, after the government apparently told him that hiked state royalties would not be offset against the MRRT.

Foolish takeaway

After taking on tech giants, Microsoft, Adobe and Apple recently, the government may not want to take on the miners in this election year, and despite the rhetoric, we are unlikely to see any changes to the MRRT before September 2013.

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More reading

The Motley Fool’s purpose is to help the world invest, better. Click here now for your free subscription to Take Stock, The Motley Fool’s free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead.  This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson. Motley Fool writer/analyst Mike King owns shares in BHP.

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