7.5 WA royalties and sovereign wealth funds
“Western Australia’s royalty system was designed to return to the community about 10% of the mine-head value of the ore, regardless of the commodity or the level of processing. ” 68 It could be argued that the royalty scheme is from a different era when there was greater direct employment and local processing as well as higher social contributions. With automation, direct exporting of low processed ores and regional Australia contributions the net financial contribution to the State is lower than in the past. It is recognised that royalties are a highly complex and emotive area and there have been significant developments even since the 2015 Government report 69 on this topic. As the Hon Ben Wyatt stated on Twitter, 11 Jan 2018 “Royalties are not a tax but a price paid by mining companies to exploit a resource owned by the public.” Another incentive to restructure the royalty system is the GST mechanism that indirectly transfers the vast bulk of royalty benefits to the other states, perversely penalizing resource development. A smart royalty scheme, that is a royalty scheme that encourages domestic downstream processing through a variety of incentives and penalties, may be considered more appropriate in the future than a flat percentage tax. As well both the State and Federal Government are eerily mute on the Norwegian Sovereign Fund approach, widely seen as world’s best practice. Although Western Australia is blessed with abundant natural resources, there is a debt owed to previous generations who were custodians of the land and also to future generations who inherit the land. At the time of writing, all royalties are included in current yearly revenue totals and it could be argued that little is saved or invested. In addition, there has been an increase in unsustainable debt, an increase in government deficits and a growing government reliance on
royalties from unsustainable finite resources (18% in 2017;15% in 2016). There is a strong moral argument that current governments should not be spending all royalty revenues. The Norwegian Government is limited to spending just 4% of their sovereign wealth fund each year, with the rest hoarded for future disasters that may befall the Scandinavian country. As WA has always lacked local capital for infrastructure investment, establishing a proper sovereign wealth fund, with proper corporate governance, separate from political control could provide this necessary capital for future generations. The current record extraction and export of finite resources could provide this base for the future. In the New Energy metals industry, there is expected to be little need to boost demand due to ongoing market pressures. Secondary processing of New Energy metals in Australia is a function of attracting foreign processing companies to Australia that currently hold the Intellectual Property over these critical downstream processes. These companies will come to Australia not because of lower cost ores but because of supply security issues, stable environment, diversity of supply and export options, quality, access to a broad spectrum of New Energy metals, greater economies of scale, logistics costs, ethical supply chains, affordable energy etc. Therefore, there is no incentive to offer local miners royalty relief or royalty holidays as local miners are not the target companies for secondary processing. On the contrary there are strong economic, social and environmental arguments to increase royalties to incentivise secondary production in Australia while at the same time discourage the export of unprocessed raw materials.
68 Department of State Development and Department of Mines and Petroleum, Mineral Royalty Rate Analysis Final Report 2015, http://www.dmp.wa.gov.au/Documents/Minerals/Mineral_Royalty_Rate_Analysis_Report.pdf . (Accessed: 01 May 2018) 69 Department of State Development and Department of Mines and Petroleum, Mineral Royalty Rate Analysis Final Report 2015, http://www.dmp.wa.gov.au/Documents/Minerals/Mineral_Royalty_Rate_Analysis_Report.pdf . (Accessed: 01 May 2018)
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