Australia's Future Tax System

Consultation Paper Summary

14. Natural resource charging

Overview

Natural resources are an essential input to Australia's productive capacity. The way in which Australia uses its natural resources is an important determinant of the level of economic growth. It also affects the environment now and into the future.

Ensuring the community obtains maximum value from the appropriate use of its natural resources is an important part of an efficient tax system. The tax system can influence the rate at which resources are extracted and the capacity of future generations to enjoy the benefits of natural resources. Issues which need to be taken into account in considering the taxation of natural resources include the size of the recoverable stock of the resource and how quickly (if at all) it is able to renew, the effect of taxes on investment decisions, which level of government taxes the resource, and the alternative uses of resources outside commodity markets.

Consultation questions

Q14.1 When considering the appropriate return to the Australian community for the use of its non-renewable resources, what relative weight should be given to the determinants of that return?

Q14.2 What is the most appropriate method of charging for Australia's non‑renewable resources, given they are immobile but that Australia needs to compete globally for mining investment?

Q14.3 What is the role of the tax system in ensuring that renewable resources are used both sustainably and efficiently?

Key messages from submissions

Some submissions suggest that there is potential to increase revenue from natural resources in the context of the overall tax mix.

Submissions from the mining sector argue that the sector's large capital expenditures and the long life of investments require stability in revenue arrangements. Consequently, any changes to mining sector revenue arrangements should only apply on a prospective basis. These submissions also state that consultation with industry prior to the introduction of any changes to existing resource pricing arrangements is critical.

One mining industry submission favours profit based arrangements over ad valorem arrangements.

Submissions from the mining sector also propose more generous tax depreciation arrangements.

Submissions from environmental organisations argue that renewable resources are being used at a rate that does not take into account their full value and is, therefore, unsustainable. Connected with this concern is a view that government involvement in the allocation and pricing of natural resources needs to be reviewed so that renewable resources are used more efficiently and in a way that improves environmental outcomes.