Threatens to withhold GST revenue from states ... Treasurer Wayne Swan. Photo: Glen McCurtayne
THE federal government is considering revisiting the mining tax legislation to close the loophole that allows the states to gouge the tax's revenue by raising royalties - a move which would risk another election-year war with the minerals giants.
The government is leaving open the option of closing the loophole which allows mining companies to deduct from their mining tax liability all current and future royalties.
It will not make a decision until it releases the final report from a panel it commissioned to examine the distribution of GST revenue to the states, but any such decision would have the support of the Greens and the independent MP Rob Oakeshott.
The Treasurer, Wayne Swan, had flagged withholding GST revenue from states as a penalty for increasing mining royalties.
But the panel, in its draft report, also recommended revisiting the treatment of royalties under the minerals resources rent tax.
The original mining tax would have allowed miners to deduct from the tax liability only the royalties they paid as of May 2, 2010.
When Kevin Rudd lost the leadership and the mining tax was re-negotiated, it was agreed that miners could deduct all royalties, including future increases.
Since then, NSW and Queensland have announced royalty increases in their state budgets, potentially reducing the mining tax take by more than $2.2 billion over four years.
Mr Swan has threatened to claw back from the states by other means any royalty increases announced since July 1 last year, which would affect NSW and Queensland. The Greens say it would be easier to just change the mining tax legislation and cap royalty deductions as of that date.
A spokesman for Mr Swan said on Wednesday the government has asked the GST Distribution Review, headed by the former NSW premier Nick Greiner, to examine incentives for states to increase royalties.
''The government is considering the final report and its recommendations before releasing it publicly,'' he said.
If that report is the same as the draft, it may recommend changing the legislation as the simplest way to protect mining tax revenue from royalty increases.
The Minerals Council of Australia, which represents the iron or and coal giants BHP Billiton, Rio Tinto and Xstrata, warned the government against changing the legislation.
''Full crediting of royalties is a key feature of the MRRT's design, one that ensures double taxation is avoided and that delivers a measure of stability and predictability to the overall tax burden on coal and iron ore projects, albeit at the upper end of globally competitive tax rates,'' a spokesman said.