Few positives for mining sector in state and federal budgets

Few positives for mining sector in state and federal budgets

This week has provided royalty rate certainty for the mining sector, but few other positives with both the state and federal budgets highlighting the impact of significant commodity price falls.

For the Western Australia State Government, the difference between expected royalty revenue in the 2014-15 year and the estimated actual amount was $1.8 billion.

Royalty revenue is expected to fall even further than the $4.4 billion estimated actual in 2014-15 to $3.7 billion in 2015-16 (15 per cent) based on assumptions of an average iron ore price of $US47.5 per tonne (CFR).

Despite the fall, the state government has kept its promise to not increase royalty rates and removed any increases from forward estimates.

In efforts to reduce the record $2.7 billion operating deficit the government has looked to recover revenue and costs in other areas – asset sales being the key ticket item.

However increases in water, energy and motor vehicle licensing costs being applied across the board will hurt mining companies.

The government is also looking to recover a $2.7 million a shortfall in the Department of Mines and Petroleum’s Reforming Environment Regulation Initiative.

The state government has committed $11.6 million to the co-funded drilling program through the Exploration Incentive Scheme.

But it’s a bittersweet commitment with the scheme looking set to conclude in 2017 despite Mines and Petroleum lobbying for continued funding.

Last month Mr Marmion announced a review of the Scheme had resulted in $10.3 million in extra exploration activity for each $1 million spent.

Meanwhile, the federal government hasn’t done the sector any favours by excluding fly-in fly-out and drive-in drive-out workers from the zone offset tax.

Making FIFO workers ineligible for the tax is expected to result in $325 million of federal government savings over the next three years, but will also make it harder to recruit workers.

The biggest wins from the federal budget are commitments to reduce the company tax rate from 30 per cent to 28.5 per cent and invest $5 billion in a Northern Australia Infrastructure Facility.

The facility is expected to work with the private sector and the governments of Western Australia, Northern Territory and Queensland to create jobs and much needed regional infrastructure – a move which will presumably encourage investment in mineral activity in the region.