Gillard backs down on mining super-tax

Friday 2nd July 2010

Australia's largest mining companies are rejoicing today following renegotiation of the controversial proposal to tax mining "super-profits" that ended deposed Prime Minister Kevin Rudd's political career.

Renamed the Mineral Resources Rent Tax, the new Australian Prime Minister, Julia Gillard's, compromise tax will only apply to coal and iron ore - of which Australia is the world's largest exporter - will be capped at 30%, and will affect 320 companies instead of around 2500 under Rudd's proposal.

It will raise the threshold at which the tax applies, and is likely to see the taps turned back on for projects worth as much as A$21 billion following a blistering political affray which pitted the Rudd administration against some of Australia's and the world's largest mining companies, including Xstrata, Rio Tinto, and BHP Billiton.

Copper miner Xstrata, which had threatened to suspend A$6.6 billion in new developments, said it would resume projects in Queensland, while BHP chief executiveMarius Kloppers said the new proposal was a "material" improvement on the Rudd proposal.

"We are encouraged that the mineral resource rent tax is closer to our frequently stated principles of sound tax reform," said Kloppers.

"The reduction in the headline rate is an amazing concession," John Robinson, chairman of Global Mining Investments, which oversees about A$300 million of assets, told Bloomberg.

"It's certainly better than I had expected."

Credit rating agency Moody's had estimated the Rudd proposal would have cut mining company earnings by almost a third. Gillard said Australia had been "stuck on this question as a nation for too long."

"This agreement provides certainty to the resources industry, to mining communities right around the country, and to the broader Australian economy," she said. The announcements also remove the single largest roadblock to Gillard calling a federal election, which could occur now at any time.

Those kiwis promoting the idea of squeezing additional taxes out of New Zealand's mining industries would be wise to look across the Tasman Sea said Chris Baker of Straterra, the Wellington-based resource sector lobby group.

"Sanity has prevailed," he said.

"The mining industry in Australia did a fantastic job in responding to what was a daft proposition," he said. "They also have a public that broadly understands the importance of mining to the economy. What was proposed was always going to change."

"The lesson is that you can easily kill the goose that lays the golden egg," said Baker.

"The public and industry of Australia clearly showed they understood that. The public here should recognise it too."

Gillard also announced other tax changes, including deferring cuts to the Australian corporate tax rate beyond the planned 29% in 2013/14 "until fiscal conditions permit".

New Zealand Finance Minister Bill English said this would help New Zealand's competitiveness against Australia.

"It is significant that from next year New Zealand's company tax rate will be two cents in the dollar below Australia's for two years and then one cent lower," he said.

"That hasn't happened for many years. We have been able to change the tax mix, including significant income and company tax cuts, at a time when many other countries are increasing taxes to tackle rising debt and snowballing deficits."

Businesswire.co.nz

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