Australia approves exploration incentive funding

OREANDA-NEWS. Australia's upper house of parliament, the Senate, has passed exploration development incentive legislation providing funding of A\$100mn (A\$77.8mn) over three years effective from 1 July 2014 to Australian upstream firms. The bill has already passed the lower house of parliament and will now become law.

The bill was an election promise of the conservative Liberal-National coalition government, while the opposition Labor party raised the idea of a similar scheme when it became the government at the 2007 election but did not implement it. This was partly because Australia was then entering a resource investment boom.

Such taxpayer exploration schemes has produced debate about their merits, as exploration is largely driven by the commodity price cycle with high prices stimulating exploration activity. This is borne out by national data with Australia's mineral exploration spending during July-September last year fell by 7.8pc from a year earlier to A\$439mn on a seasonally adjusted basis, according to the Australian Bureau of Statistics. More than 70pc of this exploration spending is on existing deposits and the rest for new areas.

The country's exploration spending has been falling during the past three years, dropping to A\$2.07bn in 2013-14 from A\$3.95bn in 2011-12. Petroleum expenditure fell by 34.1pc to A\$1bn during July-September. Most of the fall was associated with a decline in offshore spending.

Past Australian governments have introduced similar schemes to stimulate exploration activity, such as flow-through share schemes where exploration companies were able to allow their shareholders to offset their tax liabilities from the losses incurred by exploration companies.

"Those schemes over that period were based on providing tax deduction on funds invested in resources companies for the purpose of exploration," Labor senator Penny Wong said this week. "The scheme was abolished because it was used for tax avoidance and inquiries found that it contributed little towards mineral exploration."