WA Iron Ore Royalties

Friday, May 20 2011

WA has announced an increase the miners will pay for royalties on Iron Ore.   Under the proposed Federal Government MRRT there would be NO impact on the mining companies, because the royalties are rebatable for MRRT – in other words, higher royalties means less MRRT – it’s just a wealth transfer from the Federal government to the WA state government!

There’s only a couple of ways that the miners end up paying the bill –

  • The MRRT doesn’t pass into law – in which case the miners foot the higher royalty bill, but no longer have the MRRT, so massive net positive, or
  • The MRRT is somehow modified so that the state royalty increases are not rebatable. In which case BHP earnings would reduce about 1.2% and RIO by 2%

If you recall – there was a major follow-up stoush between the miners and the Fed government over exactly this issue last year. The government acceded to the miners demands that the state royalties were rebatable.

Conclusion: It does not look likely to be significant unless the MRRT is altered. The significance is the politics. The Feds look like the deal they did with the miners was made in haste – this will have on going fiscal consequences.  The Feds will push hard on GST to recoup – the politics will get ugly.   Note this is not a political statement with the same dynamic playing out regardless of who is in power.  The problem is in the structure of the MRRT with two Governments trying to have two bites of the cherry.   It leads to a distraction for Governments rather than helping clear headed decisions.

 

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