Better to increase tax on profits than revenue: miners

The Government proposes to increase royalties it receives from mining companies, but submissions on whether profits or revenue should attract the increases may alter the plan.

Any change to royalty rates will only apply to new permits, so existing mining operations such as Oceana Gold and Newmont Waihi Gold will be exempt, much to their relief.

However, the proposed regime could potentially dampen foreign-investment interest in New Zealand mines.

During the past week both Prime Minister John Key and Minister of Energy and Resources Phil Heatley have reiterated the importance of the resource sector to underpin economic recovery.

This has been a key Government policy for the past two years, but in order to succeed the sector must attract foreign investment.

The Reviewing the Royalties Regime for Minerals paper outlines proposals on Government revenue from minerals, including gold, silver, coal and platinum, phosphates and iron sands but not oil and gas.

In existing royalties, gold and silver producers pay either 1% of the value of minerals or 2% if revenue is more than $1.5 million.

The proposed changes seek either 2% of the mineral value produced, or 10% of profits, whichever is the highest.

Chief executive of political lobby group Straterra, Chris Baker, said the industry had been "primed" to expect worse, but the reality was the proposals were "not so bad, and remained competitive" internationally.

Oceana Gold chief executive Mick Wilkes has been highly critical of the initial proposals to increase tax and royalties given mining costs are spiralling well beyond the general perception that near-record gold prices must be offsetting rising costs for producers.

With more details being released, Mr Wilkes said Oceana was still reviewing the proposals in detail, but his first impression was the royalties increase was "reasonable" and the New Zealand sector would be "still internationally competitive".

"Yes, it is very good that they are not retrospective [on existing operators]," he said in a statement yesterday.

However, he believed the Government was missing an opportunity to be more competitive for foreign investment in mining by not making the royalties profits-based only.

"Rather, they have chosen to go for the higher or 2% of revenue and 10% of accounting profits," Mr Wilkes said.

Mr Baker said an increase of tax on profit was better than a increase of tax on revenue.

He said the coal industry would be harder hit by royalty proposals, given the international price per tonne had slumped and this was further compounded by rising production costs.