WA Budget Raises Gold Royalties Anger

IN THE LOBBY: Western Australia Treasurer Ben Wyatt provided a nasty shock for gold miners as he handed down his first state budget.

Leading up to the budget, Premier Mark McGowan claimed more than $5 billion in revenue has been lost since February’s pre-election financial statement, which showed a $3 billion deficit and $33.2 billion in debt for 2016/17.

Debt, he said, was forecast to eclipse $41 billion in 2019/20.

One avenue the government has decided upon will be the raising of royalty rates for gold miners from the current 2.5 per cent to 3.75 per cent.

The Treasurer said the measure is expected to raise $392 million over the forward estimates.

The royalty rise comes at an inopportune time for gold producers as they are just starting to make some headway with the gold price currently enjoying a positive run.

The measure is to take the form of a tiered royalty rate for gold that will be introduced from 1 January 2018, whereby an increased rate of 3.75 per cent will apply on the full royalty rate when the price is above $1,200 per ounce.

When the gold price is $1,200 per ounce or less, the current 2.5 per cent rate will apply.

In addition, from 1 July 2018, the WA government will remove the current exemption for the first 2,500 ounces of gold production for miners who produce more than that amount in a financial year.

The government claims the rise brings WA closer into line with other states, such as Queensland where the gold royalty rate is 5 per cent and New South Wales it stands at 4 per cent.

The next producers that could find themselves in the treasury firing line are former state Nationals Leader Brendan Grills’ mates in iron ore, which currently get hit with a higher 7.5 per cent royalty rate.

His suggestion that the bigger end of town producers should be hit with a $5 per tonne penalty, instead of the current 1960s-struck 25 cents per tonne deal will strain their necks looking over both shoulders to avoid attack.

The response from the Association of Mining and Exploration Companies (AMEC) was as swift as it was predictable with the lobby group acting chief executive officer Graham Short declaring the measure as being, “a short sighted, baffling cash grab that will have serious and unintended consequences as it will cost Western Australia in jobs and investment.”

“The decision to increase the gold royalty rate was based on a flawed Mineral Royalty Rate Review undertaken for the Barnett Government which used an inaccurate methodology and pre-2014 financial data.

“Benchmarking against other Australian jurisdictions is misleading, as 70 per cent of Australian gold is produced in Western Australia, compared to only six per cent in Queensland, and 13 per cent in New South Wales.

“The royalty increase represents a 50 per cent hike in a major business input cost for the gold industry.

“This is significant and cannot be easily met without consequences. It will be paid for in jobs, investment and mineral exploration activities.

“The perplexing issue is that the majority of the revenue raised will go out the backdoor to other Australian States and Territories through the GST re-distribution process, whilst the jobs will be lost in WA.”

Singing from the same song-sheet, Chamber of Minerals and Energy of Western Australia (CME) acting chief executive Nicole Roocke said the decision would have a devastating impact on the State’s gold sector, which may be forced to close mines and cut jobs.

“To introduce such austere measures at a time when the gold sector is just experiencing an improvement in production and sales is unjustified, especially when the majority of royalties raised from this increase will eventually be redistributed to other states through GST after four years,” Roocke said.

“Gold companies are a significant contributor to WA Government by way of royalties and account for about $238 million, or 5 per cent, of total resources industry royalties.

“The gold sector employs 25,000 people – around 23 per cent of the total WA mining industry workforce – and many of these jobs may now be put at risk due to this royalty increase.

“The Government should be encouraging investment in the sector, given its positive flow-on effect in job creation and economic growth, not hampering it with higher royalties and taxes.”

Rooke pointed to the Labor Party’s previous comments on the matter, saying it was disappointing the party is on the record in saying that any increase to gold royalties would have a negative impact due to the marginal nature of the industry.

“Gold companies, who have only recently started expanding and constructing new mines, will feel betrayed by this decision and concerned about the future of the industry,” she continued.

“CME will be strongly opposing this increase in gold royalties on behalf of our members as it will have long-term consequences for the resources industry and the WA economy as a whole.”