Sandbags of cash from Anthony Albanese to save rocky states
Anthony Albanese will sandbag seats in WA and Queensland and shield struggling miners in the budget, with Treasury close to finalising targeted production tax credits.
Anthony Albanese will use the budget to sandbag seats in Western Australia and Queensland and shield struggling nickel, lithium and rare earths producers, with the government close to finalising major support packages including targeted production tax credits for miners.
Ahead of the Prime Minister travelling to Perth next week to spruik funding aimed at ensuring critical minerals and rare earths companies remain competitive in a volatile global market, Treasury is understood to be close to landing the design of a production tax-credits scheme.
The Australian can also reveal Jim Chalmers will resist pressure from climate groups, the Greens and teal independents to scrap or scale-back fuel tax credits for miners in the May 14 budget and is expected to extend the expiring Exploring for the Future program run by Geoscience Australia.
The program, due to end this year and dedicated to mapping geological deposits and guiding commercial exploration, had its funding topped up to $225m following a $125m boost in 2020.
While the government on Thursday was tight-lipped about resources sector measures, multiple industry sources said the government is planning to proceed with production tax credits to help critical minerals and rare earths operations underpin Labor’s net zero and Future Made in Australia plans.
The policy, which faced initial resistance from Treasury, was the top demand from nickel and lithium miners at a crisis roundtable the government hosted on January 25. Resources Minister Madeleine King convened the meeting following a crash in nickel prices fuelled by a Chinese-backed surge in production in Indonesia.
Amid miners’ concerns about workplace, economic and investment impacts of the Albanese government’s sweeping industrial relations, environmental and climate change reforms, senior government sources said the resources sector would be pleased with the new budget measures.
Government sources also revealed Labor’s Future Made in Australia push would deliver major wins for Western Australia and Queensland, one year out from the federal election. Labor strategists have warned the government must win back waning support from voters in the mining battleground states.
Mr Albanese, who is expected to make resources-related announcements during his time in Western Australia next week, revealed in March the government would underwrite almost $1.1bn in loans and grants to build a rare earths mine and refinery in the Northern Territory and support a major WA lithium mine.
The Arafura and Liontown operations are heavily backed by Australia’s richest person Gina Rinehart.
A production tax credit was raised as the industry’s preferred option late last year by the Association of Mining and Exploration Companies, as lithium and nickel prices tumbled, putting pressure on producers. First Quantum Minerals, which in 2021 sold a 30 per cent stake in its Ravensthorpe operations to Korean steelmaking giant POSCO, this week announced it was putting its WA nickel mine into care and maintenance. About 330 jobs will be lost.
AMEC and mining industry chiefs have floated a proposed production tax credit that would refund 10 per cent of the production costs of chemicals such as lithium hydroxide, nickel sulphate, vanadium oxide and rare earth oxides. The credit would be refundable in cash to those companies not yet turning a profit.
Even if Mr Albanese does not make an announcement on production credits while in Perth, the mining industry is increasingly confident the government will support the measure in the budget.
Such a scheme would likely benefit a relatively small number of companies, but AMEC argues it would encourage more investment in the long term.
China’s Tianqi Lithium and ASX-listed IGO are ramping up production at their jointly owned lithium hydroxide refinery in Kwinana, south of Perth, and US lithium giant Albemarle’s lithium refinery in Western Australia could also benefit – as could the joint venture between Wesfarmers and Chilean lithium major SQM.
A production tax credit could also help encourage BHP to reinvest in a new nickel smelter in Kalgoorlie, rather than mothball its WA nickel operations at a cost of about 3000 jobs.
ASX-listed Iluka Resources is building a rare-earths refinery in WA’s Mid West region, and Andrew Forrest’s Wyloo Metals and IGO are considering the feasibility of downstream nickel refining aimed at supplying the battery market.
The advantage of a production credit over direct grants or accelerated depreciation schemes is federal Treasury would only return cash if and when companies entered production – rather than taking the risk money could be lost on half-finished construction projects.
In its budget submission, AMEC said a Mandala economic report projected that a production tax credit with a 10 per cent subsidy rate would cost the budget $340m over the forward estimates to 2027-28, net of the additional $60m in revenue resulting from increased economic activity.
“Across the medium term, the policy would cost the budget $1690m net of additional $1790m in revenue from the economic uplift resulting from the policy,” it said.
“Additional investment is expected to peak in 2028 at $1.6bn, with additional construction jobs peaking the following year at 1800.”
AMEC said the report found a production tax credit could increase the refining of lithium hydroxide more than eight-fold and vanadium oxide more than six-fold. It would also increase further downstream production of active materials such as precursor, cathodes and vanadium electrolyte.
Some mining industry figures have privately warned that production tax credits could prove a “Band-Aid solution” that would not be sufficient to help the sector and lead to money flowing offshore to Chinese and other foreign companies.
The Treasurer on Wednesday unveiled a shake-up of foreign investment rules applying stronger national security assessments on overseas investment in critical infrastructure, that would likely freeze out some Chinese companies and state-owned enterprises.
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