The federal government suffered a major setback on its mineral resource rent tax stance as the Policy Transition Group (PTG) pushed forward its major recommendation of calling on Prime Minister Julia Gillard to credit all current and future royalties to the MRRT accounts of giant mining firms.

The report served as a slap on the earlier declarations of Ms Gillard that she would not commit millions of federal funds to support tax refunds to BHP Billiton, Rio Tinto and Xstrata, which insisted that all royalties cover all forms of state/territory royalty taxes.

Co-headed by former BHP chair Don Argus, the PTG report forwarded a total of 94 recommendations following series of consultations with the mining industry and chief among them is the setting of a threshold mark for phasing in the mining tax at $50 million worth of profits and rendering the costs of MRRT interchangeable between firms' mining projects.

The PTG report suggested that royalty taxes should be refunded, non-transferable and non-refundable and carried forward and uplifted when unused, which the body said would ensure that "the taxation of Australia's resources preserves our international competitiveness and ensures Australians receive a greater benefit from mineral resources and that this is reflected in the treatment of royalties under the MRRT."

The report also warned that the MRRT should not be utilised as an enabling tool for states and territories to implement rising royalties on taxable commodities and urged the commonwealth to ensure that "the States and Territories do not have an incentive to increase royalties."

The PTG report also underscored the importance of beefing up the capability of the Australian Taxation Office (ATO) to ascertain that the agency is able enough to fully implement the new tax schemes, which will also include the enhanced petroleum resource rent tax.

Federal Treasurer Wayne Swan welcomed the recommendations authored by the PTG, giving assurance that all points made by the body would be considered and evaluated by the federal government.

Swan said that the official statement of the government on the report would be made public in the early days of 2011, following more briefings from Resources Minister Martin Ferguson, also co-chair of the PTG.