Mining profit tax clears first hurdle

By Ben Sharples

Australia's Lower House of Parliament passed legislation for a 30 per cent tax on coal and iron-ore profits as independent lawmakers and the Greens Party backed Prime Minister Julia Gillard's plan.

The Minerals Resource Rent Tax Bill faces a vote next year in the Upper House, Senate, where the Greens hold the balance of power, to become law.

BHP Billiton, Rio Tinto Group and other iron-ore and coal producers face paying about A$11 billion ($14.4 billion) in extra charges in the first three years of the tax. Australia's iron ore shipments surged to a record A$6.3 billion in September as demand from China and India for raw materials helps power the Australian economy.

"The benefits of the resources boom are one step closer to flowing to all Australians," Treasurer Wayne Swan said.

The levy will "help us lock in the benefits of the boom" for all parts of the economy, he said.

The legislation is a key policy platform of Gillard's Labor Government and passage of the bill may help restore public support for the party, which is trailing the opposition Liberal- National coalition in opinion polls.

Gillard won support from independent lawmakers for the so-called MRRT after agreeing to set up a committee to examine coal-seam gas projects and to increase the threshold at which companies will be subject to the tax to A$75 million from A$50 million.

The Greens backed the bill after reaching an agreement with the Government on offsetting any resulting shortfall in revenue.

The Greens reserve the right to improve the tax in the Senate, Adam Bandt, the party's sole member in the House of Representatives, said yesterday. The agreement with the Government is "not a new tax and it's not going to involve cutting spending", Bandt said, declining to elaborate.

The details of the accord will be released along with the mid-year economic review, which is due before the end of the year, Finance Minister Penny Wong said.

"The Greens might put on a song and dance in the Senate and speak strongly about the limitations of the legislation just to get on the record that they're in favour of a higher rate of tax," said John Warhurst, a professor at Australian National University in Canberra. "Ultimately, the Greens will probably support it."

Gillard, whose Government passed legislation two weeks ago that will make polluters pay for carbon emissions, overtook opposition leader Tony Abbott as the nation's preferred leader for the first time in six months in an opinion poll published on Tuesday.

The Prime Minister ousted her predecessor Kevin Rudd last year after his initial plan to impose a 40 per cent tax on mining company profits contributed to a decline in support for the Labor Party. She negotiated a new proposal with BHP, Rio and Xstrata, cutting the tax back to 30 per cent.

The legislation is "seriously flawed and discriminates" against smaller producers, Simon Bennison, chief executive of the Association of Mining and Exploration Companies, told reporters in Canberra.

The group represents companies including BC Iron, Kagara and Metals X. "The mining tax package is a fiscal train wreck in the making," Mathias Cormann, treasury spokesman for the opposition Liberal-National coalition, said in a statement.

"Not only are the three big miners allowed to design the tax to suit their needs, they're also the only ones allowed to know Government's mining tax revenue assumptions."

The Government has said proceeds will reduce the corporate tax rate to 29 per cent from 30 per cent, provide A$6 billion in spending for roads, rail and ports, and help increase the amount paid to people's retirement savings to 12 per cent of their salary by 2020 from the current 9 per cent. Bloomberg

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