Melbourne, 4 May 1967
Thank you for your letter of 24th April, 1967,1 and for the consideration given by Cabinet to matters of prime importance to the agreement between the Administration of the Territory of Papua and New Guinea and ourselves.
We fully recognise the authority of the Territory House of Assembly to accept or reject the legislation put to them. It has been our purpose to seek an agreement which the Administration can present with some confidence as being in the enduring interest of both parties.
I can assure you that we appreciate your granting a tax holiday and placing responsibility for further processing on a moral basis. The former could prove a decisive factor with financiers and the latter will allow proper development to proceed in the light of known facts as they emerge.
On the other hand, you will appreciate that from the outset we found considerable difficulty in accepting a tax formula likely to involve the company in paying substantially greater amounts than the general run of tax payers. It is disappointing, therefore, that Cabinet should see fit to ask that the royalty the company will pay should be disregarded in calculating the amount of Special Additional Tax due. However, it is the principle involved that we regard as being of fundamental importance. We believe it is quite necessary to have all imposts due to any central Government firmly within the ceiling. We acknowledge the wisdom of piercing the ceiling for locally paid municipal rates, but are of the opinion that its value is seriously eroded if exceptions for payments to the central Government occur within the agreement.
Within the ceiling, royalty is clearly part of the package deal by which we pay higher total taxes than others. Placed outside, it could appear morally wrong, if with the passage time the company is found to be paying less than others for royalty alone, should the general rate rise above the 1¼% f.o.b. in our agreement. Its exclusion could also be quoted as the precedent for placing any new, and not presently envisaged, tax outside the ceiling, and our reasons for accepting the burden of the Special Additional Tax could be largely negated. I must ask therefore that you reconsider your decision on this one item. As far as Division 10 is concerned,2 I have already made clear to you the importance we attach to this but we respect your wishes that it should remain for re-examination following the review of comparable Australian provisions.
I have read and given close attention to the Government’s attitude on the other matters covered in your letter. As a result, I can say we are satisfied that, with the hope that you would reconsider the royalty question, the agreement should be finalised in accordance with your proposals. Anticipating that it will prove possible for you to give early advice of your decision on this matter, we are doing all things necessary to assist the Administration in having legislation ready for presentation in early June to the House of Assembly in Port Moresby.3
[NAA: A452, 1967/1333]
1 See footnote 13, Document 106.
2 See sub-paragraph (b)(ii), Document 106.
3 Barnes announced the outlines of the draft agreement in the House of Representatives on 17 May. In doing so, he remarked that if the project assumed the magnitude expected, it would ‘by the mid 1970s double the 1965–66 rate of Territory exports’. Conclusion of the agreement would, he said, be ‘a milestone in the Territory’s economic development’. Barnes also stated that the operation would be of direct benefit to the people of Bougainville (Commonwealth parliamentary debates (Reps), vol. 55, 1967, pp. 2240–1).