Budget 2019: Will it be more of the same for resources?
Commentators seem to have very little to say on what’s in store for the resources sector in this year’s Federal Budget.
No news must be good news. Right?
Either way, we’ll find out tonight when the cash starts to flow at 7.30pm AEST.
Here’s what some are expecting could be the moments to watch.
First off, despite all the ruckus about the US-China trade war and China’s slowing economy, it looks as if these two factors haven’t blown a whopping great hole in the budget.
Reports are mixed on whether the Budget will still be in deficit or move into the black, but word on the street is that a surplus is promised for next year, and resources has helped.
According to Deloitte, China’s stimulus in the face of slowdown has propped up coal and iron ore prices, while iron ore also got an unfortunate extra boost from the dam wall tragedy in Brazil.
Australia’s resource and energy export earnings are expected to reach a record high of $278 billion this financial year.
That’s an increase of more than $50 billion compared to FY18.
“Surging tax revenues from the resource industry have helped bring our budget back into balance and export dollars from coal, iron and gas help increase our dollar’s value, increasing the buying power of all Australian consumers,” Minister for Resources and Northern Australia Matthew Canavan said on Friday.
“Our commodity exports are expected to earn more than $1.5 trillion for the nation over the next six years.”
Western Australia, of course, was responsible for a large chunk of that.
Last year, the State increased its resources sales by 16 per cent to $127.4 billion, according to statistics from the Department of Mines, Industry Regulation and Safety.
That was largely because of the strong performance from WA’s LNG producers.
An 81 per cent increase in LNG sales meant that the sector contributed $12 billion of the overall $17.8 billion increase in total mineral and petroleum sales.
LNG sales increased by 34 per cent to 43.7 million tonnes, and lithium sales rose by 24 per cent to 2.1 million tonnes – both marking new records.
Meanwhile, gold sales increased for the third year in a row to reach 7.5 million ounces in 2018, the highest level since 1998.
WA still has about $113 billion worth of resource projects in the pipeline.
Around this time last year Prime Minister Scott Morrison revealed he was planning to overhaul the federal government’s research & development (R&D) tax incentive, a move not welcomed by … well, anyone really.
The proposed changes included capping annual refunds at $4m for companies with less than $20m turnover.
That is pretty much all small cap explorers trying to bring a project into production.
Northern Minerals brought its 60,000-tonne-per-annum heavy rare earths pilot plant at its Browns Range project in WA into production with the help of R&D incentives.
Chief George Bauk said at an industry event last year that if the government had cut the R&D rebate 12 months earlier, Northern Minerals wouldn’t have made it into production.
“One of the big contributors to that project there is funding from the federal government research and development,” he said.
Several commentators have expressed their views on how Australia is lagging in competitiveness when it comes to its tax regimes.
Corporate and income taxes are a talking point for the country because our current regimes are holding back foreign investment and the ability to attract good talent to sectors like resources, which in the past has needed to look overseas to fill its skill shortages.
PwC says that with the Budget headed towards surplus, and an election looming, tax reform should return to the political agenda.
The firm says Australia’s chances of growing its local prosperity through foreign investment is “greatly diminished” because of the current corporate tax rate.
“Our company tax rate has remained static since 2000 while, all around us, other nations have been lowering theirs,” PwC said.
“In that global context, by doing nothing we are actually incentivising companies and top talent to leave Australia — while discouraging those overseas to come here.
“To reverse this, we need to progressively lower the corporate tax rate to a more globally competitive level.”
Meanwhile, at the recent release of BDO’s board and executive remuneration report for 2018, Colin Simpson, a partner at executive search firm Heidrick & Struggles, said Australia’s tax regime isn’t great.
“In our firm in particular, we do a lot of our searches globally and regionally and then you’ve got a competing pressure with our tax regime by any stretch of the imagination is not very conducive to getting people from overseas,” he said.
Australia’s mining sector is again facing skill shortages and both Liberal and Labor have scholarship incentives on the table to help lure more talent to the sector, particularly in the areas of mining engineering.
Most of the benefits expected to flow from tonight’s Budget are energy-related.
We do know that the Federal government has set aside $10m for energy projects in north and central Queensland, alongside a further 12 power projects that may also receive funding.
Other funding outlined in the pre-budget “cash splash” is $2 billion for cutting Australia’s emissions, $1.4 billion for hydro-electricity project “Snowy Hydro 2.0” and $56m for the Battery of the Nation and Marinus Link projects aimed at helping boost Tasmania’s electricity generating capability.
Fat Prophets analyst David Lennox reckons there might be some mention of thermal coal and what’s in store for that … though he was more interested in who is going to win next month’s election.
“I think there’s greater interest in what the Labor party might be wanting to do if they win the election next month,” he told Stockhead.
So who’s going to win?
“We’re expecting Labor will win,” Lennox said.
It has something to do with Labor’s unexpected negative gearing changes and its target of 50 per cent renewable energy by 2050.
According to The Australian’s Newspoll, if an election were held today, Labor would win with a 3.5 per cent swing in its favour.