Australia risks rapid erosion of its world-leading mining knowledge and skills base and the foundation of a $A40 billion mining technology and services (MTS) sector, by selectively targeting the mining industry with new tax measures.
“Resources have been the foundation of Australia’s wealth and high standard of living and taxing this area at a higher rate to fund growth of other business sectors is akin to eating the golden goose,” said Alan Broome, chairman of Austmine.
Austmine represents more than 100 MTS companies, including many of the county’s leading MTS exporters.
“Australia has the pre-eminent research, innovation and technological base world-wide in this sector,” Broome said. “These industries and all related sectors, including their employees, are at risk if the government chooses to increase the cost and decrease the attraction of mining in this country.
“Australian-based miners and exporters, including the MTS sector, are already disadvantaged globally against competitors due to a lack of cohesive action by government to foster exploration and development activity in the one of the country’s most important industries. The ‘discouragement’ takes a range of forms, from the tangle of state-based OH&S regulations, to inconsistent tax treatment of R&D and even the poor performance of the Federal Government’s Export Finance and Insurance Commission in providing export finance to international miners seeking to buy Australian technology and services.
“By comparison, as a recent example, the Canadian mining sector has provided significant export funding to Chile for the financing of Canadian suppliers and engineering services and technologies in the form of a CAD$200 million loan to Codelco. Germany also provides significant funding for both its knowledge base and manufacturing sector in mining.
“Canada’s junior mining companies are also supported by tax advantages of the flow-through share scheme which provides tax benefits to investors in mineral exploration companies.”
“There is a strategic reason that there are fewer and fewer Australian owned and based mining companies and why many of them have gone to Canada or the UK to raise capital to fund overseas projects. The government potentially is threatening what remains with additional taxes. It is worthwhile to look at the growth experienced in South Australia where the state government is pro-mining. An investment in exploration is an investment in Australia’s asset and income base for the future. ”
Following an Austmine board meeting earlier this month, Broome said members of the organisation were expressing strong concern about talk of an Australian Government mineral resource rent tax.
He pointed to a recent survey by the mining e-magazine, HighGrade.net, which showed Australian-based MTS companies generated revenues totalling more than AU$27 billion in 2009.
“The Australian resources industry is comprised not only of the mining companies, but also a very large and diverse, regionally based, high tech value-added manufacturing and services sector,” Broome said.
“The numbers used by HighGrade only reflected the mining revenues of Australian-based and controlled MTS businesses and excluded MTS companies operating in Australia such as Atlas Copco Australia and was listed with annual turnover of $A683.3 million in the recent BRW Top 1000 companies analysis.
“We estimate, perhaps conservatively, that the total value of technologies, services and equipment supplied by the MTS companies with operations in Australia is worth AU$40 billion a year.”
Broome said past research had highlighted the tremendous importance of resource-based wealth to economic development and prosperity in countries like Australia.
A paper produced by Gavin Wright and Jesse Czelusta of Stanford University in 2002, for example, highlighted the close co-relation between a strong resources sector, technological research and development, and standards of living.
“It is not a mistake that the countries with the highest standards of living world-wide also feature a strong resources base including USA, Canada, Finland, Sweden, Norway, as well as Australia,” Broome said.
“The Federal Government should not consider taxation until they fully understand the significant and complex web of industries that operate at world leading positions in sectors dependent on a strong domestic resources sector.
“Analyse data around Australian innovation and you quickly see it is clear that Australia is an adopter in most sectors – but not mining. Why? Because of our strong domestic sector and very strong R&D infrastructure supporting this knowledge.
“We certainly don’t want to go the way of the USA and UK where they lost world knowledge leadership in this area.”
Broome said Australia’s track record of producing multinational enterprises was generally poor, however, in the mining MTS space “we do create them – and that is due to our in-ground assets and related technical expertise and knowledge”.
“It would be poor policy indeed to limit the potential for these organisations to continue to develop from an Australian base, and to support the Australian mining industry in meeting the significant challenges it currently faces, particularly the need for improved mineral discovery rates and to mine and process lower-grade ores.”