5 billion mining tax compromise may have stamped Julia Gillard’s authority on her prime ministership, but business groups outside of the big miners are disappointed.
And it hasn’t impressed Opposition Leader Tony Abbott either, saying the forthcoming federal election will be a “a referendum on tax”.
After a gruelling week of talks with BHP Billiton, Xstrata and Rio Tinto in Canberra, in which Ms Gillard played a key role, the Henry review tax initiative has undergone a major reworking.
The controversial 40 per cent tax on the resources industry has been scrapped, replaced instead with a 30 per cent levy on fewer miners.
The discussions with the mining industry were “hard, frank and respectful”, Ms Gillard told reporters in Canberra.
“As prime minister, I’ve put my stamp on the approach that was taken here,” she said, adding that she was “not afraid of a difficult conversation”.
New name, similar tax
The government has ditched the name of the super profits tax, which will now be called the mineral resource rent tax (MRRT) – affecting coal and iron ore mining and just 320 companies instead of 2500.
Minerals Council of Australia chief executive Mitch Hooke – a hardened critic of the original resources tax – said the new proposal delivered a positive outcome.
“Although there is still considerable work to be done, this proposal should draw a line under the uncertainty created by the highly contentious super mining tax,” he said.
BHP, Rio and Xstrata were also encouraged by the developments, but mining magnate Clive Palmer rejected the deal as “still a large tax” which would hurt the economy.
Junior miners want exploration incentive
Junior miners are miffed the new mining tax doesn’t include an exploration incentive, such as a Canada-style flow through shares (FTS) scheme, and does not allow deductibility for infrastructure investments.
“Infrastructure is out and it should be in,” Fortescue Metals Group Ltd chief executive Andrew Forrest told reporters on Friday.
“The government should put infrastructure into that capital base.”
Major resource share prices gained on the tax announcement, while there were mixed results among the smaller miners.
Changes to the tax will mean it will bring in $1.5 billion less revenue than earlier projected – a total $10.5 billion in its first two years of implementation starting July 1, 2012.
It also means the promised cut in the corporate tax rate will now be limited to just one per cent – rather than two – to 29 per cent for small business in 2012/13 and 2013/14 for all other companies.
Business asking questions
The $5000 depreciation tax break for small business will remain in place, as will the incremental increases in superannuation guarantee to eventual 12 per cent from nine per cent.
“The decision not to proceed with the company tax cut to 28 per cent is deeply disappointing while the retention of the proposed superannuation guarantee increase leaves business with a very big bill,” Australian Industry Group chief executive Heather Ridout said.
Business Council of Australia president Graham Bradley said the process to achieve the new tax proposal was “far from ideal” and called on the government to renew its commitment to “genuine root and branch tax reform and to outline a long term tax reform agenda”.
Macquarie Research senior economist Brian Redican said while the government had made major concessions to the mining companies, the impact on revenue “appears quite small”.
“This, of course, is crucial to the government’s objective of getting the budget back into surplus by 2013,” he said.
The existing petroleum resource rent tax (PRRT) will also be extended to all Australian onshore and offshore oil and gas projects.
The new MRRT will kick in at the long-term bond rate plus seven per cent – making the threshold about 12 per cent – rather than the bond rate as previously planned.
Former BHP chairman Don Argus will chair a policy transition group for the tax proposal.