Ideas@TheCentre
Mining tax as a federalism issue
The minerals resource rent tax (MRRT) is perceived as a tax policy issue, raising questions such as whether it should exist at all, if so how it should be designed, and how much revenue it should be expected to raise.
But it is as much a federalism issue as it is a tax policy issue. The MRRT might be superior to state royalties on economic efficiency grounds, but it harms the states’ fiscal autonomy by competing with them for mining revenue opportunities. Ultimately this will make the states even more dependent on revenues controlled by the Commonwealth. The states already receive almost half their revenue from the Commonwealth – a dependency that has been white-anting federalism for decades and will continue to do so if it is not corrected.
As originally conceived by the Henry tax review, the resource rent tax was to replace state royalties, and the Commonwealth and the states were to negotiate the sharing of resource rent tax revenue. This would have been neater than the MRRT that eventually emerged, but it would have represented another episode in the long history of Commonwealth encroachment on state fiscal autonomy.
The messy MRRT that we now have co-exists with state royalties. This creates the undesirable possibility of ‘double taxation,’ which has been ameliorated by the provision for royalties to be credited against the MRRT (to the extent there is sufficient MRRT revenue). This crediting arrangement has created an incentive for states to increase royalties and thereby redistribute federal MRRT revenue back to state coffers.
If Labor wins the election, the crediting regime is bound to be curtailed in some fashion, and the MRRT would constrain the states’ freedom to raise royalties in future. If the Coalition wins, the MRRT will go but the higher royalties that the MRRT crediting arrangement has encouraged will stay and the states will be free to raise them further in the future.
Retention of the MRRT with constrained crediting of royalties would be bad news for the states’ fiscal autonomy (not to mention for the mining companies), but even if the MRRT is scrapped the underlying problem of excessive state dependence on Commonwealth grants remains.
Robert Carling is a Senior Fellow at The Centre for Independent Studies.
