The mining industry’s flow-through share scheme proposal appears to have slipped from the Federal Government’s agenda ahead of the upcoming budget.
The mining industry’s flow-through share scheme proposal appears to have slipped from the Federal Government’s agenda ahead of the upcoming budget.
Industry groups were angered last May when the proposed scheme was not included in the 2004 budget.
The FTS scheme was a key recommendation of the Federal Government’s industry/government taskforce established in 2002 to look at ways of arresting declining Australian mineral exploration, which fell by 40 per cent between 1997-1998 and 2001-2002.
Among other recommendations, the Minerals Exploration Action Agenda said a FTS scheme would improve and encourage domestic investment conditions for mineral exploration by allowing investors to write-off investments in high-risk mineral exploration against income.
However, with strong prices for many mineral commodities, and the Howard Government looking to fund recent election promises, the recommendation appears to have fallen off the radar, despite evidence from overseas, Canada in particular, of the potential benefits of such a scheme.
A spokeswoman for Resource Minister Ian MacFarlane told WA Business News last week that implementation of an FTS had “slipped down the agenda” because of the current buoyant environment for mineral commodities.
“The best way to encourage exploration is through world prices, and with so many mineral commodities we are seeing record prices,” she said.
According to the Australian Bureau of Statistics, exploration expenditure in Australia has increased by $148 million, from $640 million in 2001-2002 to $787 million last financial year.
Expenditure is likely to grow even more this year, with $511 million already spent compared with $380 million spent in the corresponding period in 2003-2004.
The spokeswoman said even lobbying for the scheme had subsided, although the scheme could not be ruled out altogether.
“It will never be completely off the agenda but with the market being what it is it makes it very hard to see it happening,” she said.
Association of Mining and Exploration Companies executive officer Justin Walawski said financing Australian mineral exploration was the industry’s number one ticket item, and he would be surprised to learn if the Government had ruled out the program indefinitely.
“Our understanding is that is still on the agenda for the 2006 budget,” Mr Walawski said.
The Government had election promises to keep, he said, and an FTS program was unlikely to be placed in the current budget considerations.
Despite this, Mr Walawski said there was still argument for an FTS program. “While commodity prices may be up that does not dispute the fact that investment in green fields exploration is alarmingly low,” he told WA Business News.
He said the median share price of greenfield exploration companies to float on the Australian Stock Exchange between 2002 and March 2005 had been negative 18 per cent, according to a recent study. The S&P ASX metals and mining index had increased by 74 per cent over the corresponding period.
A senior Treasury representative is expected to attend an MEAA meeting later this month at which the FTS scheme is scheduled for discussion.
The Chamber of Minerals and Energy WA did not respond to WA Business News’ calls, however it is understood representatives from the chamber met with Mr MacFarlane last week while he was in Perth.
Last year the chamber said it was deeply disappointed at the Government’s failure to fund the scheme.
At a recent mining conference in Perth a representative of a Canadian mining industry group spoke on the benefits of a FTS scheme, which has been part of the Canadian tax system for almost 50 years.
Canada recently implemented an enhanced version of the scheme and has overtaken Australia both in terms of domestic exploration expenditure and as a destination for global exploration expenditure.
Prospectors and Developers Association of Canada director of regulatory affairs, David Comba, said the scheme had worked so well in boosting exploration in Canada he was astonished Australia hadn’t implemented something.
“It’s been a terrific scheme. It helped out a lot of companies when things were very grim and it gave the Canadian juniors some real momentum, which the Australians didn’t have when things picked up,” he said.
Mr Comba said there may be a wariness to implement a scheme because of misconceptions that had developed in relation to the scheme over the years.
