McGowan breaks promise on gold tax hike; sector unimpressed
Premier Mark McGowan has changed his tune on lifting Western Australia’s gold royalty.
“Gold, by its nature, can often be very marginal. A lot of work, a lot of processing, a lot of employment — but at the end of the day, costs are high and if this royalty comes in, mines will close and jobs will be lost.”
That quote did not come from the embittered head of a goldmining company stung by yesterday’s royalty hike. Nor did it come from one of the lobby groups now gearing up to fight the 50 per cent lift in gold royalties introduced by Mark McGowan’s West Australian Labor government yesterday.
Instead, the words came from McGowan himself, back in 2014, when he was a key opponent of efforts by then-premier Colin Barnett to introduce a gold royalty increase of exactly the same magnitude.
McGowan did not shy away from the fact that yesterday’s royalty lift constituted a broken promise, apologising to the industry for the decision.
It’s an apology that will do little to placate an angry gold sector, which may well feel jilted that it has been singled out for an increase while the much bigger, much more profitable iron ore industry has been protected from such a move.
It didn’t take long yesterday for the predictable arguments from the gold industry to surface. Naturally, they focused on how the royalty lift would endanger the state’s most marginal goldmines, threaten jobs and discourage the investment and exploration needed to sustain and grow the industry.
Those arguments, however, will be weakened by the fact that the gold sector is enjoying some of the best prices and margins in its history. Gold is trading above $1600 an ounce, while most miners are reporting — give or take — all-in sustaining costs of about $1100 an ounce.
The new WA royalty rate of 3.75 per cent also remains comfortably below the 5 per cent imposed by the Queensland government and the 4 per cent levied on output in NSW.
The government can also point to the fact that the iron ore giants will be doing at least some sort of additional lifting, with the likes of BHP, Rio Tinto and Fortescue Metals Group set to be liable for around a fifth of the $435 million forecast to be raised through the payroll tax hike on the state’s biggest companies. The trio will also have to wear a 17 per cent increase in Pilbara port fees worth about $100m.
Given the iron ore miners are generating about $US1 billion a month in profits, those additional charges will be like the bug on the windscreen of one of their 400-tonne dump trucks.
The big boys of iron ore have repeatedly set the template for how to respond to proposed tax hikes, having destroyed Kevin Rudd’s first government when he tried to impose the Resource Super Profits Tax and then effectively ending the career of the then-leader of the Nationals in WA, Brendon Grylls, when he floated a new $5 per tonne tax on iron ore.
Unfortunately for the gold sector, however, it won’t have the advantage of a looming election.
The iron ore boys were able to leverage March’s WA state election, and their multi-million-dollar advertising blitz was central to Mr Grylls eventually losing his seat.
With the next election not until 2021 and with McGowan enjoying a massive majority, there’s no instability for the goldminers to try to wedge.
Perhaps their strongest argument will be to make sure that McGowan’s own previous words on the dangers of increasing gold royalties are heard far and wide.
On top of the earlier statement, there’s another quote from McGowan’s past that weakens his efforts to sell the gold royalty hike today.
Back in 2015, he noted the futility of hiking royalties given the knock-on effect on the federal redistribution of the GST.
“For every dollar we get in gold royalties, we lose 90c in GST, so at the end of the day for every dollar of royalty increase the state gets 10c,” he said.
“It’s basically a waste of time to put up the royalty.”
It’s an argument that still stands today, although Treasurer Ben Wyatt said he expected the GST to swallow only 60c of every extra dollar.
The royalty lift could also be felt indirectly by goldminers outside WA.
The royalty hike announcement was made smack-bang in the middle of the Africa Down Under mining conference in Perth, which has attracted more than a dozen ministerial delegations from countries across Africa in part to see how one of the world’s pre-eminent mining jurisdictions is administered.
Seeing a 50 per cent royalty hike in front of their very eyes could well plant the seeds for future royalty hikes of their own back home.
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