The new State of the Sector report from the Queensland Resources Council confirms the struggling position of the mining sector, and it must have the Queensland Treasury considering further royalties revenue write downs. It also makes me wonder whether the QRC might now prefer a resource rent tax (i.e. a mining super profits tax) to the current royalties regime. QRC CEO Michael Roche noted in the report that:
“…we need to be having a conversation about the fact that the state government is collecting royalties from resource operations which aren’t even covering their cash costs.”
I agree this is a conversation that needs to be had, because the QRC CEO has correctly pointed out the problem with royalties, that they are not related to profitability and can discourage efficient extraction of a resource. Royalties typically appear at the top of the list of bad taxes (see my 2011 post Inefficient State taxes). So it would be desirable, for the economy and arguably the mining sector, too, to cut royalties and make up the revenue with a resource rent tax, which would tax the super profits of mining companies (i.e. meaning they would pay much less tax in difficult times such as these, and more in the good times). However, the sector has previously opposed such a tax, and the limited resource rent tax that was implemented by the Gillard Government was ultimately repealed by the Abbott Government. The sector may now be regretting it was not more open to a resource rent tax.