How relatively little it takes to please miners these days.
A 30 per cent tax on so-called super profits instead of a 40 per cent rate — when there was no suggestion of any ‘super profits’ tax just six months ago.
So, hooray. Another acronym has been born, as the RSPT — the Resources Super Profits Tax — metamorphises into the MRRT — the Minerals Resource Rent Tax.
In a widely-reported backdown billed (by a fund manager) on Bloomberg as an “amazing” Australian tax win by miners BHP, Xstrata and Rio Tinto – the ring-leaders of the anti-tax lobby who helped negotiate the new MRRT — Julia Gillard, Australia’s new prime minister, announced on Friday that her government would water down the controversial tax cooked up by her predecessor Kevin Rudd.
While a reduction of 25 per cent in any proposed tax is indeed a big chunk, Gillard’s quick concession, while well-orchestrated and spun, is about the least one could expect.
From her point of view, a compromise on the tax was important for her re-election prospects.
With a national election in the works as early as August and top miners — foreign and domestic — threatening to cancel billions of dollars worth of planned projects (and therefore jobs) over the proposed tax, Gillard moved to end a bruising two-month fight with the mining industry that was clearly hurting the Labor party’s re-election chances — and most definitely damaged the ill-fated Rudd, who was dumped by his party just last week.
How far plans for the tax — and opposition to it — had come was evident in the breathless responses to Gillard’s climb-down, as mainstream media hailed the historic compromise, the biggest miners welcomed it, the Australian dollar strengthened and mining stocks rose.
In a typically approving comment, BusinessSpectator’s Stephen Bartholomeusz observed:
The MRRT is based on far sounder principles than its dud predecessor and Gillard should be commended for so promptly consulting with the industry. The task now is to ensure the new regime is fairly implemented.
As the FT reports, under the compromise proposal, iron ore and coal will now be subject to the new tax at a rate of 30 per cent instead of the originally announced 40 per cent. The tax will kick-in on profits that exceed an approximate 12 per cent rate of return, rather than 6 per cent before.
The new agreement includes a concession for existing mines, a victory for the three big miners, BHP, Rio and Xstrata, who said in a joint statement: “The companies agree that the proposal presented by the government represents very significant progress towards a minerals taxation regime that satisfies the industry’s core principles.”
But, as Reuters noted on Friday, while the big global miners operating in Australia welcomed the new tax, not all resources companies were happy, with some saying the deal still threatened Australia’s resources sector and overseas investment.
One mining magnate, Clive Palmer, summed it up, telling the news agency: “New taxes of any scale don’t help create jobs or stimulate overseas investment in Australia’s resource sector”.
For Gillard, there is another, albeit minor problem, in that the mining tax — forecast to raise A$12bn (US$10.1bn) in its first two years — was designed to fund some ambitious spending plans and tax cuts. Indeed, the revised tax plan, which would kick in on July 1 2012, would generate A$1.5bn less in revenue than the original proposal according to calculations.
But Gillard’s government said the lower resource tax rate should still bring in sufficient revenue to fund an increase in old age pensions and a cut in the company income tax rate, both key re-election pledges.
But according to the FT, Wayne Swan, treasurer and deputy prime minister, said the shortfall could be offset by cutting the company tax rate to 29 per cent rather than 28 per cent from 2013. The government would save a further A$1.1bn by scrapping a resource exploration rebate.
Simple.
And as for all those miners out there fearful that Australia’s original mining tax plan would set off a wave of resources nationalism around the world, Gillard’s backdown — while mild — and Kevin Rudd’s spectacular fall, might at least make some governments think twice about how far they would go in imposing such taxes.
Related links:
G’day Gillard – not – FT Alphaville
Australia’s mining tax could have global reverberations - BeyondBrics
Super confusion on Australia’s super profits mining tax – FTAlphaville
Mining super-tax rage (Part II): Dark and light side – FT Alphaville