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Gillard Reaches Deal With Miners on Australian Tax (Correct)
Jul 2,2010 10:17CST
industry news

July 2 (Bloomberg) -- Australian Prime Minister Julia Gillard reached an agreement with mining companies on a new resources tax, ending a dispute that cost her predecessor Kevin Rudd his job and paving the way for an election this year.

The mineral resources tax will be 30 percent, applying to iron ore and coal, while the levy on oil and gas projects will be 40 percent, the government said.

"Today we have a breakthrough agreement that moves Australia forward with certainty," Gillard said at a news conference in Canberra. "We have been stuck on this question for too long. It will end uncertainty and division."

BHP Billiton Ltd., the world’s biggest mining company, and Rio Tinto Group said they were encouraged by the decision. The companies made the comment in a regulatory filing. Xstrata Plc, the world’s fourth-largest copper producer, said it will resume full project activities at its Ernest Henry mine in Queensland.

The Australian dollar gained 0.2 percent to 84.51 U.S. cents as of 10:03 a.m. in Sydney from yesterday in New York. BHP Billiton’s shares rose 1.6 percent to A$37.51 in early trading. Rio Tinto shares gained 1.5 percent.

The government said the minerals tax will apply to the profits of iron ore and coal and it extended the current Petroleum Resource Rent Tax to all onshore and offshore petroleum and gas projects.

The levy’s threshold, effectively the point where the tax kicks in, will now be based on the 10-year government bond rate, currently around 5 percent, plus 7 percent. Previously it was to apply to any profits above the 10-year government bond rate.

Gillard’s Victory

The agreement is Gillard’s first victory since she ousted Rudd last week. His slump in opinion polls during a three-month brawl with mining executives threatened to make the Labor Party the nation’s first one-term government in 80 years.

"Her intervention changed the tone of the debate and led to this breakthrough," Treasurer and Deputy Prime Minister Wayne Swan told reporters at the news conference. Larger mining companies will pay "significantly more tax," he said.

Gillard, who has said she will call an election this year, will use funds from the new levy to cut the company tax rate to 29 percent from 2013-2014, the government said.

"The chances of an election in August-September have increased significantly as a result," said Tim Schroeders, who helps manage A$1.1 billion ($930 million) at Pengana Capital Ltd. in Melbourne. It "provides the Gillard government with enormous impetus during her honeymoon."

Opposition Attacks

The accord may defuse attacks from opposition leader Tony Abbott that the government is damaging an industry that helped the nation skirt the global recession, and it may prompt Xstrata and other companies to start work on $21 billion of delayed projects.

"This issue was hanging over the sector for some time so it’s a welcome relief," said Prasad Patkar, who helps manage about $1.4 billion in Sydney at Platypus Asset Management Ltd. "Hopefully, this was an aberration in an otherwise investor- friendly policy environment enjoyed in Australia, and that that is how the investment community looks at things going forward."

The coal seam methane industry will fall under the Petroleum Resources Rent Tax, with a long-standing tax rate of 4 percent that so far has applied to only offshore petroleum projects.

Highest Taxes

Under Rudd’s initial proposal, miners would have paid a 40 percent tax on any profits above a 6 percent return on their investment on projects in Australia. This would have made the nation the world’s highest-taxing for mining companies, according to the Minerals Council of Australia, an industry lobby group.

Rudd’s proposed tax would have raised A$12 billion in its first two years. Morgan Stanley estimated the levy would have cost the mining industry A$85 billion in its first 10 years.

Some Australian newspapers are indicating Gillard may call an election as early as August. Labor leads the opposition by 53 percent to 47 percent, according to a Newspoll telephone survey of 1,142 people between June 25 and 27. About 53 percent of voters prefer Gillard as prime minister, compared with 29 percent for Abbott, the poll, which had a 3 percentage point margin of error, showed.

Resource Tax

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