Mining tax billions are an illusion: Fortescue chief

LABOR'S mining tax has been branded an "illusion" that will fail to deliver the $10.6 billion assumed in the federal budget.

LABOR'S mining tax has been branded an "illusion" that will fail to deliver the $10.6 billion assumed in the commonwealth budget papers, as mining companies predict they will pay little or none of the impost.

Fortescue Metals Group chairman Andrew Forrest stepped up his attack on Wayne Swan over the tax yesterday, forecasting his company would pay no more than $50 million under the scheme over the next five years.

The comments come as Rio Tinto warned of the difficulty of estimating the revenue from the minerals resource rent tax, which starts on July 1, in next week's federal budget. Big US miner Cliffs Natural Resources, which owns coal and iron ore assets in Australia, forecast a one-off gain of $US314.7m ($303.8m) from the mining tax in its quarterly accounts last week, saying the up-front "net deferred tax asset" would be offset over many years by a "3 per cent to 4 per cent" increase in its effective tax rate.

Mr Forrest's claim is the first Fortescue estimate of the impact of the mining tax since the reforms went through parliament in March, and is lower than the company's guidance last year that the MRRT might cost the company up to $20m a year.

While the MRRT is based on a 22.5 per cent tax rate on the profits from iron ore and coalmining, mining companies including BHP Billiton, Rio Tinto and Xstrata are yet to reveal any material impact on their earnings in the coming financial year.

The latest budget update said the tax would deliver $10.6bn in its first three years, including $3.7bn in 2012-13, when the Treasurer has promised a budget surplus.

"I would say we'll pay between zero and $50m of MRRT sometime in the next five years," Mr Forrest told the National Press Club. "I'm not sure when it is, and it'll depend on iron ore prices. But will it raise the $10bn? No, that's an illusion. It was a political charade which has been sold to the Australian workers as a mining tax.

"Even today I read media saying: 'Isn't it great we at least have a mining tax?'

"Well, it would be great if you have one, but you don't."

Mr Forrest said the Treasurer had done a "terrible deal" by negotiating the MRRT with BHP, Rio and Xstrata in July 2010, after dumping its precursor, the resource super-profits tax.

Mr Forrest's comments underscore increasing doubts over whether the MRRT will raise anything near the $10.6bn Mr Swan expects in its first three years and which he has earmarked to fund business tax cuts, infrastructure and help for low-income earners to boost their superannuation.

Mr Swan told The Australian earlier this week that the $10.6bn estimate released last November had been produced in the normal way by the Treasury, taking into account variables that could affect mining industry profits. The figures would be updated in Tuesday's budget, a spokesman said.

Mining giant Xstrata told The Australian yesterday it did not endorse the revenue estimate and that its agreement with Labor over the MRRT explicitly excluded revenue projections. "These are necessarily and solely the domain of Treasury and the government," an Xstrata spokeswoman said.

"Resource rent taxes are volatile, making it very difficult to forecast future revenues and exposures. The MRRT will be no exception. It will be volatile as commodity prices, exchange rates and investment plans change."

Other mining industry sources, asking for anonymity, questioned the government's wisdom in tying tax receipts to particular spending areas.

"Even if it was produced by the Treasury, this estimate is meaningless because there are so many variables," one source said.

"It might be accurate at the time it was produced, based on data available at that time, but we are talking about future profits and there can be no certainty.

"The people in the Treasury would produce them as required by the government of the day. But I doubt that would endorse them as being reliable. They are more of an academic exercise."