WA Labor handed down its state budget last Thursday night, with concerning implications for the resources sector.

Among the policies to affect the industry were a royalty tax hike for gold producers and higher payroll taxes.

In a blow to the gold sector in WA, the state government has proposed what it describes as a “tiered royalty rate” with an increase of royalty rates to 3.75 percent when the gold price is above $1200 an ounce.

With the current gold price hovering at almost $1700 an ounce, the augmented rate will add more than $20 an ounce to a company’s royalty payment to the government.

The royalty rate was previously set at 2.5 percent.

The current exemption for the first 2,500 ounces of gold produced each year will be removed from July 1, 2018 for miners who produce more than 2,500 ounces per year.

The changes are proposed to come into effect from 1 January, 2018, however, their passage could be blocked through disallowance motions in the Upper House. For it to pass, Labor would need the support of crossbenchers as it is unlikely the Liberal and WA Nationals will agree to the proposal.

The government claimed the changes were “broadly consistent” with the previous government’s Mineral Royalty Rate Analysis, which recommended that;

• the gold industry has consistently provided a lower return to the State than other major commodities in WA;
• mining costs in the gold industry are, on average, no higher than mining costs of other commodities;
• the gold industry is able to adjust project costs in response to changes in price;
• WA’s gold royalty rate is low compared with other Australian jurisdictions; and
• the 2,500 ounce exemption does not reduce compliance costs for miners producing more than 2,500 ounces per year.

The changes will affect about 50 gold mines in WA and are estimated to raise $392 million in additional royalty revenue.

Mines and Petroleum Minister Bill Johnston pointed to the changes being consistent with the 2015 Mineral Royalty Rate Analysis report, which found the gold industry provided a lower return to the state than other commodities.

“It is only fair that the Western Australian community receives a more appropriate return on the State’s gold resources,” he said.

“Recent increases in exploration expenditure, employment and the value of gold sales, and high gold prices, indicate strong conditions for the gold industry.

“Given these strong conditions, and that WA ranked third for investment attractiveness in the recent Fraser Institute 2016 Survey of Mining Companies – ahead of other major gold producers – the changed royalty arrangements are not expected to impact investment in the State’s gold industry.”

As previously reported in a news update article, AREEA received a letter in reply to correspondence about the policy of WA Labor affecting the resources industry after its election victory.

AREEA received a commitment from Mr McGowan on a range of issues including FIFO regulation, taxation and energy policy.

In particular, Mr McGowan described the mining tax proposed by the WA Nationals – to increase an existing iron ore production rental fee of 25 cents per tonne paid by miners Rio Tinto and BHP Billiton, to $5 a tonne – as a ‘job-destroying new tax’.