New analysis of WA’s $5 iron ore levy proposal

The Australia Institute has assessed the proposal for a $5 levy on iron ore in Western Australia. The policy should be supported as a pragmatic alternative to a resource rent tax.

The analysis finds that if the $5 levy had been imposed on relevant production over the last five years it would have raised $11.5 billion for the state.

“The iron ore mines that would pay the proposed fee have very low costs of production, with costs ranging from $US15-20 per tonne. With the price outlook at $US47-54 through to 2020, a $5 per tonne levy is very reasonable, affordable and fair,” Executive Director of The Australia Institute, Ben Oquist said.

“Because the increased levy would create no incentive for the highly profitable mines to reduce production, it is unlikely to lead to any reduction of employment in Pilbara mining.

“Western Australia is facing a revenue crisis, and this measure would raise around $2.8 billion per year. Our analysis finds that if those additional state revenues were invested in infrastructure projects, they would create an estimated 4,600 jobs.

To date, the only study of this specific proposal has been the Deloitte report commissioned by the Minerals Council of Australia which The Australia Institute briefing paper critiques.

“Deloitte have assumed that in the distant future the $5 levy might have an effect on mines in the final years of operation.

“In reality, however, there no evidence that any WA mine will be made uneconomic in the foreseeable future.

“If at some point, decades from now, evidence suggests that the levy could lead to the premature closure of a mine, then the WA government could simply adjust the levy – in the same way that income tax and other thresholds are often adjusted.

“A $5 per tonne levy is a balanced and pragmatic way for Western Australia’s mineral wealth to provide benefit to West Australians

“Australia has squandered too much of the resource boom. For too long too little of the value created from the country’s resources has been returned to the public. A modest increase in the WA iron ore levy is sensible economics and sensible public policy,” Oquist said. 

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