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20 May 11 Preamble - Friday 20 May 2011

Failing to embrace real tax reform risks squandering Australia’s potential and poorly positioning us for the challenges of the next 40 years.  We have seen this week that the failure can also lead to significant, real dollar costs in the medium term.  The West Australian government’s decision to increase its resources royalties in this week’s State budget, will now invoke the Federal Government’s commitment to reimburse those miners subject to the new Minerals Resource Rent Tax for all of the State royalties that they pay.  So the Federal Budget bottom line is now effectively held hostage to the budgeting decisions of sovereign State governments – they can increase their royalties when and by as much as they see fit, and the cost will be worn by the Federal Government and Australian taxpayers.

State royalties were fingered by the Henry Tax Review as being amongst the least efficient and worst designed taxes in Australia. The Tax Institute's view is that inefficient taxes should not be allowed to stand. The Federal Government should grasp the opportunity to continue the reform of inefficient and poorly designed State taxes and abolish royalties via the Council of Australian Governments process.  This would prevent the current situation of a taxpayer paying a royalty to a State government, only to have it refunded by the Federal Government and it would also prevent the direct impact on the Federal Budget bottom line from State government revenue decisions.

And all of this before we have even seen draft legislation for the Minerals Resource Rent Tax.  Please let me know your thoughts on this and other key areas of tax reform at Tax Policy.

Please see below for details of other activities this week.

Kind regards

Robert Jeremenko FTIA


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