Australia’s mineral resources are a vital part of this nation’s endowment. In terms of mineral commodity production, Australia has a significant comparative advantage over other countries around the world. Therefore, the mineral production industry and the effectiveness of its performance have attracted the eyes of both Australian government and the public. On July 1st 2012, the government started to charge the Minerals Resource Rent Tax (MRRT) from the mining companies of iron ore and coal. As stated on the new regulation, companies producing iron ore are to pay the tax of 30% on profits if their annual profits are $75 million or above. The name, the tax rate is 30%; in essence, the real tax rate is 22.5% in consideration of tax return and other benefiting policies. In this way, the government expected that the tax revenue would increase by $2 billion during the first year of implementation. (Ireland, 2013) However, until February 2013, the mining tax has only made $126 million in the first half year, which means that it is impossible for the government to achieve the tax revenue target. In this essay, we aim to answer why this regulation is brought into force and what affect the increase of the mining tax revenue. In the first part, the essay will introduce the market structure of the mining industry, mainly the iron ore producers, in Australia under the S-C-P theory and the necessity of government interference in the industrial behaviour. In the second part, some influencing factors that may affect the performance of the mining industry are discussed. In the final part, the tax mechanism of this new regulation is explained, and the reasons why tax revenue fails to reach the target will be shown according to above discussion. In conclusion, though the new tax policy does contain government’s good will, it is not effective enough to impose remedial power over the market.
This essay discussed the new tax regulation introduced by the Australia government, the expected effects of this regulation and the reasons why the target is not accomplished. The conclusion is drawn that under the current real situation the Australian government is unable to generate large tax income out of the new regulation. The industry of iron ore production is an oligopoly market structure. In this industrial structure, the resource of production is controlled by a few firms and is a high barrier of entry to potential competitors. Therefore, the controlling firms are able to maximize their own profit. However, it leads to negative externalities to the entire society to pay for the social cost of iron ore production. To reduce the externality and raise the tax income for Australian government is the main target of the new regulation introduced this time. A direct tax increases additional compliance cost on the business, decreasing the quantity and increasing the price of mining products in the industry. Though Australian government aimed to achieve $2 billion tax income, they only collected $126 million in reality. There are three influencing factors which made it impossible to achieve the aimed tax income in reality. The most vital constraint is the decreasing price of mining products, followed by the increasing operation cost and the pessimistic attitude in the whole industry.