Australia's Future Tax System

Final Report: Detailed Analysis

Chapter C: Land and resources taxes

C1. Charging for non-renewable resources

Key points

Australia has abundant non-renewable resources, which are expected to continue to command high prices driven by demand particularly from China and India.

The community, through the Australian and State governments, owns rights to Australia's non-renewable resources and should seek an appropriate return from allowing private firms to exploit these resources.

Current charging arrangements fail to collect a sufficient return for the community because they are unresponsive to changes in profits. Further, the current arrangements distort investment and production decisions, thereby lowering the community's return from its resources.

The current arrangements should be replaced with a uniform resource rent-based tax, using the allowance for corporate capital method. The tax should be imposed and administered by the Australian government.

A rent-based tax would, over time, earn for the community a greater return from the use of its resources while still attracting private investment. Such a tax would also require the government to accept a greater share of the risks than it currently bears.

To complement the resource rent tax, a cash bidding system should be introduced to allocate exploration permits.

Australian and State government fees and stamp duties on the transfer of interests in resource projects inhibit the efficient transfer of such interests and should be abolished, except those related to administrative costs.

The Australian and State governments should negotiate an appropriate inter-governmental allocation of the revenues and risks from the resource rent tax.

The Australian government should set out a time-frame to implement the resource rent tax and provide guidance at the time of announcement on how existing investments and investment in the interim will be treated. Transitional arrangements for existing projects will be critical and should be managed with an adjustment, as appropriate, to the starting base for the allowance for corporate capital.