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The Claytons mining tax

The Federal government looks likely to walk away empty handed – apart from more egg on its face, after the nation’s top resources companies confirmed they will not make any mining tax payments for the second consecutive quarter.

According to The Australian, BHP Billiton (ASX: BHP), Rio Tinto Limited (ASX: RIO), Fortescue Metals Group (ASX: FMG) and Xstrata will escape paying the government’s Minerals Resource Rent Tax (MRRT), despite a recent surge in iron ore prices.

The Federal government had forecast revenues of $2 billion from the controversial new tax this year alone, but so far the MRRT hasn’t raised a single cent. A renewed political fight over the design of the tax is expected to break out, and raise new doubts over Labor’s pledge to deliver a budget surplus this year.

Economists are now predicting a budget deficit of $15 billion or more, as company tax revenue from the miners also dropped dramatically in the December quarter, mainly due to falls in commodity prices. According to The Australian, Rio Tinto’s tax bill halved in the last three months of 2012, compared to a year earlier, as iron ore and coal prices slumped. Tax experts suggest the shortfall from Rio alone could have lost the government $500 million, based on estimates that the big miner was paying $1 billion in taxes per quarter in 2011.

The newspaper reports that even if iron ore prices remain near the current level of US$155 a tonne, the MRRT take is expected to be minimal. This is because of the writedowns available to the big miners’ existing iron ore operations, which were added when the miners were given the chance to renegotiate the new mining tax with Julia Gillard, following Kevin Rudd’s removal as prime minister.

Foolish takeaway

Currently the MRRT only applies to iron ore and coal. The federal government may look at amending it, to incorporate other commodities and block some of the loopholes in the current legislation. Expect a swift reaction from the miners.

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Motley Fool writer/analyst Mike King owns shares in BHP. The Motley Fool’s purpose is to help the world invest, better. Take Stock is The Motley Fool’s free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead. Click here now to request your free subscription, whilst it’s still available. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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