Table C.11 Assumed average iron ore royalty rate Per cent a Imputed rate. b By assumption. c May not sum due to rounding. Productivity Commission estimates based on data provided by the CGC. Source: Calculations The dollar value of royalties collected by Western Australia due to the change in its iron ore royalty rate was calculated by subtracting Western assumed average iron ore Australia’s royalty rate in 2010 (5.099 per cent) from the imputed rate for that year (table C.11) and multiplying this number by Western iron ore revenue base. A discount factor (the Australia’s proportion of additional revenues due to a royalty rate change that is to be subject to equalisation) was set such that exactly 50 per cent of this revenue would be retained. This factor is equal to the proportion of revenue to be retained (in this case 0.50) divided by the difference between Western share of the iron ore base and its population share: Australia’s Where is the discount factor to be applied to the additional royalties that resulted from the rate increase in assessment year The discount factor changed slightly each year as Western t. base share and population share varied. Total royalties across all States that were Australia’s subject to equalisation in each assessment year was therefore: Where is the assessment year, is the base share of State and is the imputed royalty rate t i, for Western Australia. A national average royalty rate for iron ore was then calculated using these discounted royalties, and applied to each revenue base to calculate assessed State’s iron ore revenues. Calculating the total GST requirement for each assessment year required two steps. First, the total GST requirement in each State net of the original mining assessment was calculated by subtracting each assessed difference for mining revenue from their GST requirement State’s in that assessment year. The new mining assessed difference based on the
Table C.11 Assumed average iron ore royalty rate Per cent a Imputed rate. b By assumption. c May not sum due to rounding. Source: Productivity Commission estimates based on data provided by the CGC. Calculations The dollar value of royalties collected by Western Australia due to the change in its iron ore royalty rate was calculated by subtracting Western Australia’s assumed average iron ore royalty rate in 2010 (5.099 per cent) from the imputed rate for that year (table C.11) and multiplying this number by Western Australia’s iron ore revenue base. A discount factor (the proportion of additional revenues due to a royalty rate change that is to be subject to equalisation) was set such that exactly 50 per cent of this revenue would be retained. This factor is equal to the proportion of revenue to be retained (in this case 0.50) divided by the difference between Western Australia’s share of the iron ore base and its population share: Where is the discount factor to be applied to the additional royalties that resulted from the rate increase in assessment year t. The discount factor changed slightly each year as Western Australia’s base share and population share varied. Total royalties across all States that were subject to equalisation in each assessment year was therefore: Where t is the assessment year, is the base share of State i, and is the imputed royalty rate for Western Australia. A national average royalty rate for iron ore was then calculated using these discounted royalties, and applied to each State’s revenue base to calculate assessed iron ore revenues. Calculating the total GST requirement for each assessment year required two steps. First, the total GST requirement in each State net of the original mining assessment was calculated by subtracting each State’s assessed difference for mining revenue from their GST requirement in that assessment year. The new mining assessed difference based on the
horizontal-fiscal-equalisation.docx