The 2014 Federal Budget: What It Means For Mining
May 14th, 2014
The latest budget has been released and there were a number of surprises for the mining industry.
However, despite what many critics of the industry were expecting, the news was overall positive for resources.
However despite this, overall spending on the mining, manufacturing and construction industry is forecast to decrease from $3.139 billion last year, to $2.74 billion next year, falling again to $2.58 billion in the following year.
It expects a major part of this decrease, approximately 14.6 per cent in real terms from 2013-14 to 2014-15 due to a decrease in expenses for the Research and Development tax Incentive and refundable tax offset from 45 per cent to 43.5 per cent from 1 July this year.
In terms of positives for mining, the government has pledged remove the Mineral Resources Rent Tax this year, leave the Diesel Fuel Tax Rebate Scheme alone, support the development of new projects and exploration in the country, and cut the existing levels of both red and green tape.
In his budget speech last night treasurer Joe Hockey stated that “to improve business opportunities, we are cutting company tax by 1.5 percentage points for around 800,000 businesses. We are abolishing the carbon tax and we are abolishing the mining tax”.
“We are removing $1 billion a year in red tape because regulation means more staff doing paperwork and fewer staff helping customers.”
A major aspect of this new budget is the government’s promise to keep to its pledge to remove the mining and carbon taxes.
Last year it was revealed the mining tax raised only $200 million, well below the $3 billion predicted, and effectively only 5 per cent of the original estimates.
According to the government’s own budget papers “in 2013-14, net receipts from the MRRT are expected to be even lower, around $100 million, partly due to some companies claiming refunds from overpaid MRRT instalments from the previous year (this is down from $700 million forecast in the 2013-14 Budget and 2013 PEFO). The 2014-15 Budget forecast of $100 million is less than 2 per cent of the amount originally envisaged”.
Because of this the Abbott Government will continue to fight to repeal the MRRT from 1 July this year, with its budget papers stating that “the MRRT is a failed tax which raises almost no revenue, yet imposes an unnecessary regulatory and compliance burden on the Australian mining industry”.
One of the major benefits for the industry is the government’s promise of $100 million for greenfields exploration.
Dubbed the Exploration Development Incentive, it is designed to “encourage investment in small exploration companies undertaking greenfields mineral exploration in Australia”.
“Australian shareholders of these companies will receive a tax offset for the company’s greenfields exploration.”
This is a boon for the mining industry, which has seen massive declines in exploration spending across the board.
According the Mineral and Petroleum Exploration, Australia, Dec 2013 report shows the alarming downturn in operating expenditure and metres drilled in mineral exploration.
Although the downward trend has continued steadily since 2011, the estimate for the December quarter saw total mineral exploration expenditure down 9.8 per cent, or down $58 million to $536.3 million, with the largest contributor being Western Australia down 12 per cent.
Seasonally adjusted this equated to expenditure down 12.5 per cent, down 19.3 per cent in WA.
Exploration on areas of new deposits fell 27.5 per cent or $66.5 million, and on existing deposits the expenditure fell 6.2 per cent or $24.5 million.
The largest monetary decrease for any mineral was for iron ore, down 17.1 per cent or $38 million, while nickel fell 49.2 per cent or $18.6 million.
In terms of metres drilled the trend estimate fell 2.7 per cent for the December quarter, with the current estimate 22.6 per cent lower than the same time in 2012.
Greenfields drilling fell 33.2 per cent while brownfields drilling rose by 9.1 per cent.
The Australian Nuclear Science and Technology Organisation (ANSTO) will also receive funding, with an additional $31.6 million over four years to the group to go towards the costs of operating the Open Pool Australian Lightwater (OPA) nuclear research reactor at full capacity.
Regionally the nation’s north is also a winner, with the government to develop a whitepaper investigating the development of a Northern Economic Zone.
There have been calls for the establishment of a Northern Special Economic Zone for some time, with Galaxy poll results released by the Institute of Public Affairs stating that more than half of those surveyed supported lower taxes to stimulate growth in the north.
Hugh Tobin from the Institute of Public Affairs told Australian Mining "a Northern Special Economic Zone, comprising Northern Western Australia, the Northern Territory, and Northern Queensland will allow Australia to make the most of our natural mineral wealth and will reduce some of the problems that exist for people living in these regions".
In Gina Rinehart's book released more than a year ago she called for the establishment of a new economic zone, pushing her position as the chair of the group Australians for Northern Development and Economic Vision (ANDEV).
The government is also making an enormous push on the infrastructure front, promising a six year $50 billion package, to build new roads, railways, and ports.
But it is not all good news for industry.
The National Low Emissions Coal Initiative, which helped companies develop and deploy technology to reduce emissions from coal use, has had its funding reduced, although funding of $96.6 million over four years will remain available.
The much purported Diesel Fuel Tax Rebate Scheme cuts that were expected did not rise, but the overall fuel excise tax cut did, which will lead to an overall increase in fuel costs.
For younger workers the Australian Apprenticeships Incentives Programme – Tools for your Trade will end.
Although from July this year the government will provide apprentices with concessional Trade Support Loans of up to $20 000 over a four?year apprenticeship.
“We give young people loans to help them complete a university course, so it is only right that those completing a trade qualification get the same fair go,” Hockey said.
While this budget is a mixed bag, and has a more austere focus for many Australians, it is yet to be seen what effect the new measures will have on the growing national deficit.