Competitive tax settings are essential to deliver Australia's economic recovery and create a net zero emissions future.
Australia can deliver the minerals and metals the world needs with internationally-competitive and stable investment settings.
A new study released by the MCA today shows that uncompetitive tax rates have already dragged Australia's investment effort over the past seven years, hampering productivity and wages growth.
The report suggests that to maximise its share of this investment, Australia cannot further increase its already globally high tax rates or introduce changes to workplace relations or regulations that stifle new opportunities.
The report, written by the University of Calgary's Philip Bazel and Jack Mintz, underlines that at 30 per cent Australia has the third highest company income tax rate of OECD countries in 2021, slightly below Portugal and Japan (and tied with Germany and Mexico) and well above the OECD GDP-weighted average of 26.3 per cent.
Australia also has the third highest effective tax rate on marginal investments once accounting for differences in company tax write offs and other taxes on capital investment (such as stamp duties, real estate transfer taxes and capital levies).
Australia's effective tax rate on marginal investments is 28.1 per cent, three points higher than the G20 GDP-weighted average of 25.1 per cent and almost four points higher than the OECD GDP-weighted average of 23.8 per cent.
Australian mining companies pay royalties as a percentage of value of production to state governments that generally range from 4 or 5 per cent to 7.5 per cent for iron ore and over 8 per cent for coal. While these rates are often lower than those in China and India, they are well above effective mining tax levies in Canada and the United States.
In the last decade (between 2011-12 and 2020-21), Australia's mining industry contributed $254 billion in company taxes and royalties ($142 billion and $112 billion respectively).
Given Australia's higher effective company income taxes and stamp duties especially on real estate transfers, it is therefore not surprising Australia's mining companies typically pay more tax and mining levies on their gross profits compared to Canadian companies and, in the case of copper, gold and iron ore, the United States.
Leaving aside Brazil, China, India and Russia, Australia's fiscal system is less competitive than most countries for copper, gold and iron ore. This needs to be addressed to ensure that mining continues to be the largest contributor to Australia's economy (accounting for 10 per cent of GDP), our largest source of export income (with a new record high $413 billion in resources exports last financial year) and supports over 1.1 million jobs at mine sites and in supply chains across the country.
The report recommends that two types of reform are considered to encourage more investment in the Australian mining sector: company income tax rate reduction from 30 to 25 per cent (which would be close to OECD average rate) and machinery expensing available to all companies on a permanent basis.
Demand for commodities such as lithium, copper, nickel and rare earth elements will be essential to the technologies the world needs to drive lower emissions with recent estimates suggesting over $4 trillion of investment in mining and minerals processing will be needed by 2050.
