The OECD has supported Australia's controversial proposed mining tax by saying it is fair and efficient and recommended it be imposed on all miners. In an upbeat survey of Australia's economic future, the Organisation for Economic Co-operation and Development said the tax, a bone of contention between the government and the world's biggest miners, was "justified".
But the OECD said the proposed 30 percent tax, expected to take effect from 2012, could be improved by having it replace royalties and extending it to all commodities and miners, regardless of their sizes.
It said this would ensure the proposed tax, described as "relatively low", does not distort investment incentives by only targeting large firms and certain sectors.
The proposed mining tax targets 320 iron ore and coal miners with profits of A$50 million ($49.3 million) a year or more. It is supposed to raise A$10 billion in its first two years to help pay for a cut in the company tax rate and higher worker pensions. The OECD said royalties should be scrapped to simplify the tax system and prevent states from raising royalty rates in future.
"Replacing the royalties by a well designed resource rent tax extended to all commodities and all companies irrespective of their size would be desirable," the OECD said.
The treatment of royalties has been a lightning rod between the government and miners and threatened to scupper a mining tax deal struck between the government and top miners BHP Billiton, Rio Tino and Xstrata.
Miners are worried the government will not keep its promise to credit future rises in state mining royalties back to them to offset the proposed tax.
The OECD said the government should set up a reserve fund for revenues accruing from the mining tax. It said that would shield the budget and the real economy from swings within the sector.