Australian government prepared to adjust mining tax

CANBERRA Wed Sep 8, 2010 2:22pm EDT

Australia's Prime Minister Julia Gillard speaks during a news conference with Treasurer Wayne Swan in Parliament House, Canberra, September 7, 2010. REUTERS/Andrew Taylor

Australia's Prime Minister Julia Gillard speaks during a news conference with Treasurer Wayne Swan in Parliament House, Canberra, September 7, 2010.

Credit: Reuters/Andrew Taylor

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CANBERRA (Reuters) - Australia's fragile Labor government suggested on Wednesday it could adjust a planned profits-based tax on mining companies to bend to demands of the independent MPs giving it a slender grip on power.

Key independent Tony Windsor, who on Tuesday sided with Labor to break a two-week political impasse following inconclusive August 21 elections, said he wanted the tax reviewed at a special meeting next year, possibly delaying passage of the law.

Mining stocks were sold down in overnight London trade after Prime Minister Julia Gillard won backing from two independent MPs to clinch a parliamentary majority of just one seat and form the country's first minority government since World War Two.

"We've got a commitment to the minerals resource rent tax. We made that commitment at the election," Deputy Prime Minister and Treasurer Wayne Swan told local television.

"But there does need to be extensive consultation. This must pass the parliament. So, of course the independents and other minor parties will be involved in that discussion as we draw up the legislation," Swan said.

Gillard went into Australia's closest election in decades proposing a 30 percent tax on coal and iron ore mining profits from 2012, using proceeds to cut company tax cut from 30 percent to 29 percent and boost workers' pension funds.

The softened-down tax was negotiated with global miners BHP Billiton, Rio Tinto and Xstrata, but opposed by smaller miners like Fortescue Metals Group worried about its impact on growth.

The tax targets one of Australia's most vital export industries and has dogged the government since its inception earlier this year. A damaging campaign against it by miners cost Gillard's predecessor Kevin Rudd his job.

The turmoil around the tax and a trail of botched economic stimulus projects contributed to the government losing 16 seats at the poll despite strong economic growth and low unemployment.

The independent MPs want the issue to be part of a broad discussion on taxes by next June but have not said what changes they might seek.

Swan said he did not expect the summit to debate the mining tax because the government was aiming to complete legislation within six months.

But Windsor warned that he wanted it included.

The independents support Labor's concept of a tax affecting major iron ore and coal miners, but not the detail. They want negotiations to include the smaller miners like Fortescue, Macarthur Coal, Centennial Coal.

Rio Tinto and BHP Billiton fell 1.8 percent and 1.4 percent in London trade, respectively. In afternoon Australian trade, they were down 0.97 percent and 1.3 percent.

The tax would anyway struggle to pass through a hostile Senate before July 2011. And after that, the government would need to negotiate with a stronger contingent of Green senators who may want a tougher mining tax.

Labor will also press ahead with a $38 billion broadband telecoms project, lifting shares in phone company Telstra by 1.4 percent given an A$11 billion deal to fold its infrastructure into the network. A price on carbon emissions is also a Labor goal.

An online opinion poll in the Sydney Morning Herald found 50 percent of respondents thought Labor's minority government would be unstable. A single swing vote in the 150-seat lower house could defeat legislation or push the government from power in a no-confidence motion.

(Editing by Jonathan Thatcher)

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