Western Australia Slaps Tax Increase on Gold Miners; Move Could Impact Production
Officials in Western Australia have announced a plan to raise the gold royalty payments the state levies on gold miners by 1.25%, a move that could depress gold output in the world’s second-largest gold producing country.
Western Australia Premier Mark McGowan said the gold royalty increase from 2.5% to 3.75% per ounce would raise an additional $422 million (US) over four years and will help repair the state’s lagging finances. The higher tax will apply as long as the spot price for gold remains above $1,200 (AUS) per ounce. According to a Reuters report, the last time the price of gold dipped below that level was November 2009.
The state’s 2017 budget showed a $2.44 billion deficit.
Western Australia covers the entire western third of the country and accounts for about 80% of the nation’s gold output, according to Reuters. Australia ranks second in the world in gold production, only behind China. The country produced about 287 tons of gold in 2016.
At the current gold price, the tax increase comes to about $16 (US) per ounce.
Mining company executives say they can’t afford the higher royalties. Northern Star Resources chairman Bill Beament said the tax increase could mean less gold production in the long-term.
“Western Australia’s gold miners cannot pass on these additional costs. This means they will have no choice but to cut costs elsewhere, jeopardizing jobs, exploration expenditure and future growth opportunities.”
Big mining companies will be hit with a double-whammy. The state also plans to impose a temporary progressive payroll tax scale for five years. Western Australia employers with an Australia-wide payroll exceeding $100 million, but less than $1.5 billion (AUS), will have that portion of their payroll taxed at 6%, up from 5.5%. Employers exceeding $1.5 billion payroll will be taxed at 6.5%.
The government moves could put further downward pressure on an already lagging gold supply. Australian mine production dropped sharply earlier this year. Analysts blamed the weather, but there are underlying factors that could foreshadow long-term falling production. Many Australian mines have had to transition to more difficult mining techniques as the easier to reach gold near the surface has already been dug out.
Meanwhile, Mine output also dropped sharply in China in the first quarter of this year. According to a rare report issued by the China Gold Association, the country’s first quarter gold production dropped 9.3% year-on-year, falling from 111.563 tons in Q1 2016 to 101.197 tons this year.
Worldwide production plateaued in 2016 and many analysts believe the world may be at or nearing “peak gold,” meaning the amount of gold mined out of the earth will begin to shrink every year, rather than increase, as it has done pretty consistently since the 1970s.
Get Peter Schiff’s most important Gold headlines once per week – click here – for a free subscription to his exclusive weekly email updates.
Interested in learning how to buy gold and buy silver?
Call 1-888-GOLD-160 and speak with a Precious Metals Specialist today!