November 22, 2011 / 2:31 PM / 7 years ago

UPDATE 2-Australia's mining tax passes biggest political hurdle

* Australian mining tax passes biggest hurdle

* Treasurer expects tax to pass Senate in early 2012

* Greens agree after govt finds budget savings

* 30 percent profits tax to start in July 2012

By James Grubel

CANBERRA, Nov 23 (Reuters) - Australia’s plan to impose a 30 percent tax on its booming iron ore and coal sectors cleared its biggest political hurdle on Wednesday when legislation passed parliament’s lower house after a last-minute deal to win support from the influential Greens.

The vote is a major victory for Prime Minister Julia Gillard’s Labor Party after 18 months of acrimonious debate that brought down former prime minister Kevin Rudd. Mining companies ran a public campaign against his original 40 percent tax plan.

Gillard wants the new tax on mining profits to pay for a company tax cut and boost pensions, helping to spread the benefits of Australia’s resources boom to other parts of the economy struggling with the global downturn.

“This is a way in which all Australians share in the bounty of the mining boom,” Treasurer Wayne Swan told parliament.

Gillard’s minority government needs support from three independents and a Green lawmaker for its one-seat majority, and the fate of the mining tax remained uncertain until late Tuesday because of concerns held by the Greens.

But the bills passed 73 votes to 71 with support from the Greens after the government committed to A$20 million ($20.4 million) a year of budget savings under separate measures to be announced in coming days.

The legislation will now go to the upper house Senate in early 2012, where the government and the Greens have the numbers to ensure the bills are passed into law.

The mining tax, being eyed by other resource nations in South America and Africa, is a key policy for Gillard, who struck a deal on the tax with global miners BHP Billiton , Rio Tinto and Xstrata in July 2010.

Opposition conservatives accused the government of doing secret deals with the Greens that would hurt investment confidence, while Xstrata warned the government against additional levies on top of the 30 percent tax.

Xstrata’s coal division head, Peter Freyberg, whose company will pay 80 percent of the expected tax revenue along with Rio and BHP, told Reuters that any additional moves to extract more money from the mining sector could drive new investment away.

Treasurer Swan said that details of the government’s deal with the Greens to pass the mining tax would be included in a mid-year budget update, expected within a fortnight.

“It’s a worthy measure for Australia, it’s a very significant economic reform, it’s a huge win for the Australian people. I believe it will pass the Senate after it is debated there in the new year,” Swan told Australian radio.

COMPANY TAX CUTS

The tax will start on July 1, 2012, and will raise A$7.7 billion ($7.8 billion) in its first two years, which will be earmarked to fund company tax breaks and compensate business for higher payments into compulsory worker pension funds.

It will also pay for billions of dollars of investment in infrastructure in regional Australia, particularly the key mining states of Western Australia and Queensland.

The tax will hit about 30 of Australia’s biggest miners. Although it is set at 30 percent, it will have an effective rate of 22.5 percent when special mining industry tax allowances are taken into account.

The tax faced concerted opposition from Labor’s conservative opponents and small- and mid-sized miners, led by iron ore magnate Andrew Forrest and his Fortescue Metals Group, who said the tax favours global miners.

But the government said the tax would not hurt Australia’s record investment in mining, with planned capital investment of A$430 billion in Australian resource projects.

Fuelled by strong demand from China, Australia’s government commodities forecaster said in June it expected iron ore exports to grow 8 percent to 437 million tonnes in the current year to June 30, 2012, with export income to grow 17 percent in the year despite lower world prices.

To win political support in parliament, Gillard agreed to lift the starting profits threshold for the tax from A$50 million to A$75 million, with the tax to be phased in up to $125 million.

Gillard also agreed to spend A$200 million from the tax revenue to fund research into the environmental impacts of coal seam gas developments, and to encourage state governments to use independent research when approving coal seam gas projects.

The mining tax vote came in the final week of parliament for 2011, and comes two weeks after Gillard successfully passed her landmark carbon price legislation.

The next elections are still up to two years away and polls show Gillard’s government would be swept from office easily. But an Essential media poll on Monday found 51 percent support for the mining tax, and only 33 percent opposed.

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