Saturday, July 3, 2010

New paper finds mining tax breaks 'excessive'

TREASURY has renewed its claim that the mining industry has been paying less than its fair share of tax, releasing new estimates showing mining's share of corporate profits is almost double its share of company tax.

In an updated version of the controversial paper issued by Treasurer Wayne Swan late in May in the heat of the tax battle, senior Treasury economists have questioned whether excessive tax breaks for the mining industry are drawing too much investment into the sector.

The new paper is released today in Treasury's quarterly economic round-up. It is mere coincidence that it appears as the warring parties sign a peace treaty.

The paper, Disparities in average rates of company tax across industries, is by Peter Greagg, Dean Parham and Pero Stojanovski of Treasury's business tax division.

It carries the usual disclaimer that it does not necessarily represent the views of the Treasury.

The new paper updates the out-of-date figures used in the earlier version, and concedes that mining's share of corporate taxes has risen.

But it finds that even in 2007-08, the miners earned 24 per cent of company profits, but paid only 14 per cent of company taxes.

It blames this disparity on "generous" tax breaks including immediate deductions for exploration and some infrastructure spending, and generous depreciation rates for plant and equipment.

The paper says the electricity, gas and water industry enjoys an even bigger disparity, earning 4 per cent of company profits but paying just 0.3 per cent of company tax.

It repeats its warning that such tax breaks lead to a misallocation of investment into tax-favoured industries at the expense of "worthwhile investment in other industries".

To reduce the disparity, it proposes "a review of deductions, concessions and allowances", focusing on reducing excessively generous depreciation rates.