Canberra, 2 July 2010

Australia ended a damaging dispute with global miners on Friday by dumping its "super profits" tax for a lower resources rent tax backed by key global miners, clearing a major hurdle to call an early election. "There will be no resources super profits tax," Prime Minister Julia Gillard said in announcing the new profit-based resources rent tax in Canberra. The Australian dollar jumped nearly half a U.S. cent on the news, shares rose 1 percent early with BHP Billiton and Rio Tinto up around 2 percent and Fortescue Metals up 4 percent.

But the new resources tax deal must still be passed by the next parliament, following elections expected within months, with opposition parties vowing to reject it if they win office and key Green senators demanding parliament decide the fate of the deal.

Gillard has resurrected the government's flagging popularity with voters since her appointment last week and is now on track for a narrow victory in polls, which may be called for August, according to the latest Reuters Poll Trend.

Global miners BHP Billiton, Rio Tinto and Xstrata welcomed the new tax, but not all miners were happy, saying the deal still threatened Australia's resources' sector and overseas investment.

"New taxes of any scale don't help create jobs or stimulate overseas investment in Australia's resource sector. We still have an issue of sovereign risk," said Australian mining magnate Clive Palmer.

New Mining Tax Deal

The new Minerals Resource Rent Tax will apply only to iron ore and coal projects, while a Petroleum Resource Rent Tax, currently applicable to offshore oil and gas projects, will be extended to onshore oil and gas projects, Gillard said.

The resource rent tax will be at a rate of 30 percent, down from the previous "super profits" tax rate of 40 percent, and the trigger point for the tax will be higher, at the 10-year bond rate plus 7 percent, currently at around 12 percent.

The petroleum tax rate will be unchanged at 40 percent. The new resources rent tax will apply from July 1, 2012, as earlier proposed for the "super profits" tax. Coal and iron ore are Australia's top two exports, accounting for over a quarter of last year's A$250 billion export revenue. Their share is expected to rise this year as commodity prices soar and export volumes rise.

The earlier mining super profits tax had threatened more than $20 billion in investment, according to mining companies, but no major project has yet been scrapped and several have actually been advanced since the tax was unveiled on May 2.

In an immediate response, Xstrata Ltd on Friday said it was reinstating A$600 million ($508 million) in copper mining and exploration at its Ernest Henry mine in Queensland. The move will extend the mine's life by at least 12 years to 2024. "The fact we've got certainty now will breed confidence ... and is a big positive for the Australian economy," said Chris Weston, institutional dealer at IG Markets.

"I think the Australian government has just won themselves an election on the back of this. You can't have the government at war with its biggest industry, which is what was happening." Miners, who had until recently run a multi-million dollar anti-tax advertising campaign which was worrying voters, said it would now work constructively with the government to ensure the local resource industry remained internationally competitive.

"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," BHP, Rio and Xstrata said in a joint statement.

Lower Tax Revenue, 2013 Sueplus On Track

The government's compromise means it will receive A$1.5 billion less revenue than under its planned "super profits" tax, which was suppose to raise around A$12 billion. Gillard said the government would still be on track for a budget surplus by 2013 as planned under the "super profits" tax.

Due to the lower revenue, Australia's company tax rate will be cut to 29 percent by 2013-14, but will not be reduced further under current fiscal conditions, and a rebate on resource exploration will be dumped. A planned hike in compulsory pension contributions, from 9 per cent to 12 per cent by 2020, remained unaffected.

"We were determined to get a fairer share of the mineral  wealth in our ground for all Australians," said Gillard.

Ends --

By James Grubel, Reuters - for Commodities Now