Royalties need rethink

Senator Canavan revealed his proposed plan of attack to Fairfax Agricultural Media this week saying it was something he’d considered “deeply” over a period of time.

He will now raise the improved tax-sharing concept with federal Resources Minister Josh Frydenberg ahead of him taking the white-hot issue of coal seam gas (CSG) mining and land access regulations to next month’s meeting with State energy ministers.

“I think the discussion is a useful one for COAG to have later this year,” Senator Canavan said.

Senator Canavan believes the current royalty system, which captures a percentage of the total revenue made on a mined resource - like 10 per cent of the well-head value in Queensland’s $22 billion gas industry - is inefficient.

He’s concerned the current method incentivises States to maximise mining revenues – but that conflicts with environmental protection measures and potentially the rights and well-being of landowners, like farmers.

Senator Canavan said the current royalty system differed from the method employed by governments to fund-raise for State or Commonwealth government services.

He said governments normally allow people to “make transactions and do business” and then remove a small portion of that business activity or profit, as tax.

However, rather than using a royalties scheme for taxing mining profits, he believes a better method of revenue collection would be via an income tax which would let landowners and gas companies negotiate their own land access arrangements.

“That would give the landowner a financial return while still allowing the gas company room to invest, and then the State governments could take a cut - let’s say 50 per cent as a benchmark which is like the top tax rate,” he said.

State governments are ultimately responsible for mining regulations which have come under fire recently amid calls to give farmers the power of veto to stop mining occurring on their land.

But Senator Canavan said via his plan, the Commonwealth government would still be required to exempt any revenue raised, via the land access agreements, from federal income taxes.

“Personally I think something like this could be a circuit-breaker,” he said.

“It would allow negotiations between landowners and mining companies to take place, independent of the State, but while knowing a specific tax rate would apply to any negotiated price.

“It would operate it does for like any other business deal where the parties involved know they’re going to lose 30pc of their corporate profits in tax.

“Under this proposal, the landowners would know they’re going to lose 50pc of whatever income they negotiate with the mining companies, to tax, to help fund public services but they get to keep the other half of that income.

“I think this plan would give them more control and help unlock the frozen state of affairs on CSG mining in NSW and Victoria in particular but also in parts of Queensland that are in a state of flux at the moment due to this impasse.”

Senator Canavan said in his proposal, land access negotiations would purely be held between three parties - the landowner, the mining companies and State governments.

“They’d all know the rules of the game then and a certain tax rate would apply,” he said.

“I’ve suggested 50pc but another figure could potentially work just as well and with that in mind, those negotiations could take place.

“This is not an issue the federal government can solve on its own but perhaps we can play a role here by exempting landowner royalty income from income tax and letting the State governments take their share of those profits.”

Senator Canavan said his proposed plan would not “relax” any existing environmental controls and monitoring powers.

He said the nation had some of the strongest environmental laws and regulations in the world and tougher monitoring powers had been implemented for CSG mining at a federal level through the Independent Expert Scientific Committee.

“Those protections will continue,” he said.

“In Queensland where I’m from, this industry has been providing gas now for 20 years and there have been some incidents but also there doesn’t seem to be evidence of widespread environmental harm over that period.

“We now rely on this industry for more than 90pc of Queensland’s gas needs and about 40pc of the eastern seaboard’s gas needs come from the Queensland CSG industry.

“It’s an industry we now have and we will need to live with but we’ll be able to live with it easier, if we give landowners more rights.

“The disagreements we have in regional communities about this issue are a roadblock to the industry developing and I think we need a circuit-breaker to get around that.

“Handing more rights and controls to private property owners is a solution because private enterprise has a way of unclogging the pipes, in a way that governments and private ownership can’t.”

The Australian Petroleum Production and Exploration Association says between 2014 and 2020, the national oil and gas industry is expected to grow by 16pc from 2.15pc to 2.5pc of GDP, with the GDP contribution growing by 59pc, from $35b to $55b.

In a statement last week, Queensland Resources Council chief executive Michael Roche said there had “much heat and very little light on the issue of land access”.

Mr Roche said Queensland introduced the Land Access Framework in 2010 that provided for a mandated agreement between landholders and resource companies on how resource activities will be conducted and impacts compensated for.

He said under the Land Access Code more than 4500 conduct and compensation agreements had been struck between gas companies and landholders and it was believed only two gas cases have been referred to the Land Court.

Mr Roche said in 2014-15 the Queensland gas industry contributed $22 billion directly and indirectly to the State’s economy, representing 7pc of its entire gross regional product.

He said the industry supported an estimated 114,000 jobs and purchased goods and services from 3600 Queensland businesses.