Mining companies to pay a fraction of Labor tax estimates

RESOURCE giants have revealed more than $35 billion in accounting gains that could slash their liabilities under Labor's mining tax.

RESOURCE giants have revealed more than $35 billion in accounting gains that could slash their liabilities under Labor's mining tax, in another blow to the federal budget as doubts over the government's revenue forecasts grow.

The nation's three biggest mining companies could use the "deferred tax assets" to cut their mining tax payments to a fraction of the government's original estimates, heightening the row over tax policy before the federal election.

But a return to Wayne Swan's original resources tax would take a bigger toll on the budget, according to predictions yesterday that the earlier plan would see Canberra "writing cheques" to companies to refund their state mining royalties.

While the Treasurer has conceded that minerals resource rent tax revenue will be "down substantially" on the $2bn forecast for this year, company executives yesterday revealed the scale of the deductions they could claim against the tax for years to come.

The deferred tax assets are worth $10.7bn at BHP Billiton and $11bn at Xstrata, company tax officials told a Senate inquiry yesterday. Rio Tinto confirmed its March statement showing deferred tax assets of about $13bn.

BHP iron ore senior finance manager Brian Purdy cautioned that the assets were an "accounting concept" based on commodity price assumptions and other factors, which could not be used as deductions in any one year.

Xstrata tax manager Dominic Smith said the company would not need to use any of its $11bn deferred tax asset as a deduction against the MRRT given the fall in coal prices had cut what it might have to pay in mining tax.

"The profitability of the industry is quite low at the moment so we've got no current prospect of using those deductions at current prices," Mr Smith said.

He confirmed that the deductions could be claimed in the future if prices rose.

Labor's high hopes for the mining tax took a blow when the Treasurer revealed only $126 million in MRRT revenue in the six months to the end of December.

While BHP paid some MRRT during those six months, Xstrata and Rio did not. Rio government relations executive Mark O'Neill told yesterday's hearing the company made a payment in the March quarter.

Minerals Council of Australia chief executive Mitch Hooke rejected the idea the deferred tax assets were "loopholes" in the regime, arguing they were standard accounting practice in tax law.

The big three mining companies did not express any views yesterday on whether the mining tax should be scrapped, given they were signatories to a July 2010 agreement to introduce it, but Mr Hooke said he did not need to "tiptoe through the tulips" on the issue. "Would we look a gift horse in the mouth if this tax was to be withdrawn? No," he said.

Mr Hooke told the hearing a return to the resource super-profits tax, an idea dropped in July 2010, would not help the budget given its design included refunds to mining companies for state royalties.

Deloitte Access Economics director Chris Richardson has estimated the refunds would have cost Canberra about $900m this year if the RSPT were in place.

University of Melbourne professorial fellow Ross Garnaut told the Senate hearing the RSPT was a "boffin's tax" and a bad step in public policy but he backed the concept of resource rent taxes and said the MRRT should be overhauled.

Professor Garnaut, one of the proponents of the resource rent tax imposed on oil and gas by the Hawke government in 1987, said a similar design could be applied to minerals and that a 40 per cent tax rate would not be too high.

He cautioned that this reform would need a major conference between Canberra and the states to resolve fundamental problems in federal financial relations.

Opposition assistant Treasury spokesman Mathias Cormann called on the government to release the latest MRRT revenue figures given companies were required to lodge new instalment notices by April 21.

A spokeswoman for the Treasurer said the MRRT numbers would be released when Treasury and the tax office had gone through their "usual processes".