Box 7.7 How would discounted royalty rate changes have affected Western Australia? The Commission has estimated how the proposal for discounting future tax rate changes CGC’s might have impacted States had it been applied in the past. This analysis assumes that the approach had been in place since 2010, when Western Australia started to phase in an increase in its iron ore royalty rate. The figure below shows the ownsource revenue impacts on Western Australia (calculated using annual relativities). For simplicity, this analysis shows the impacts relative to a counterfactual scenario where the current mineralbymineral mining assessment is used for the entire period (in practice it has only been in place since 2015). It shows that in this hypothetical scenario Western Australia would have retained 50 per cent of the additional revenue, compared to about 12 per cent with no discount. With this mining discount (and a mineral-by-mineral assessment) WA’s relativities would have ranged from 0.30 to 0.60 over the period, compared to a range of 0.22 to 0.58 without. The table below shows what the implications for all States GST payments would have been in 201819 (calculated as the average of annual relativities over the three financial years up to 201617). GST payments would have been $519 million higher, whereas GST payments for WA’s other States would each be reduced by between $4 million (Northern Territory) and $190 million (NSW). Sources: Productivity Commission estimates based on data provided by the CGC; appendix C. The largest decrease in annual payments would have been to New South Wales in 2013-14 ($207 million) although on a per capita basis the decrease is spread evenly across the States. Some inquiry participants favoured the proposal. The ACT Government (sub. DR81, CGC’s p. 27) supported it on the basis that the current mining assessment can give some States an incentive to lower or avoid raising their royalty rates. The ACT Government also noted that in practice only a few mineral categories would be affected. The WA Government while strongly favouring greater policy neutrality in the mining — assessment disagreed with the level at which a discount would be applied, and with the — general approach it involves. It argued that redistribution due to tax rate changes should be
Box 7.7 How would discounted royalty rate changes have affected Western Australia? The Commission has estimated how the CGC’s proposal for discounting future tax rate changes might have impacted States had it been applied in the past. This analysis assumes that the approach had been in place since 2010, when Western Australia started to phase in an increase in its iron ore royalty rate. The figure below shows the ownsource revenue impacts on Western Australia (calculated using annual relativities). For simplicity, this analysis shows the impacts relative to a counterfactual scenario where the current mineralbymineral mining assessment is used for the entire period (in practice it has only been in place since 2015). It shows that in this hypothetical scenario Western Australia would have retained 50 per cent of the additional revenue, compared to about 12 per cent with no discount. With this mining discount (and a mineral-by-mineral assessment) WA’s relativities would have ranged from 0.30 to 0.60 over the period, compared to a range of 0.22 to 0.58 without. The table below shows what the implications for all States GST payments would have been in 201819 (calculated as the average of annual relativities over the three financial years up to 201617). WA’s GST payments would have been $519 million higher, whereas GST payments for other States would each be reduced by between $4 million (Northern Territory) and $190 million (NSW). Sources: Productivity Commission estimates based on data provided by the CGC; appendix C. The largest decrease in annual payments would have been to New South Wales in 2013-14 ($207 million) although on a per capita basis the decrease is spread evenly across the States. Some inquiry participants favoured the CGC’s proposal. The ACT Government (sub. DR81, p. 27) supported it on the basis that the current mining assessment can give some States an incentive to lower or avoid raising their royalty rates. The ACT Government also noted that in practice only a few mineral categories would be affected. The WA Government — while strongly favouring greater policy neutrality in the mining assessment — disagreed with the level at which a discount would be applied, and with the general approach it involves. It argued that redistribution due to tax rate changes should be
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