Australia govt & miners dig trenches in tax battle

By Rob Taylor

CANBERRA, May 3 (BestGrowthStock) – Australia’s government girded
on Monday for a battle with global miners over its plan to slap
the industry with a new 40 percent profits tax, after two
home-grown mining giants said the move would threaten
investment.

Anglo-Australian miners Rio Tinto (RIO.AX: )(RIO.L: ) and BHP
Billiton (BHP.AX: )(BHP.L: ) say the new tax, announced on Sunday,
would jeopardise investment in the nation’s biggest export
sector and make it the world’s most heavily taxed mining
industry.

But the centre-left government, which has made the tax a
centrepiece of its re-election agenda this year, defended the
move on Monday, stressing that the new tax would simply replace
existing mining royalties charged by state governments.

Australian Treasurer Wayne Swan also said some of the money
raised from the new tax would be ploughed back into generous
tax breaks for mining exploration and noted that miners would
also benefit from a planned cut in corporate tax.
[ID:nSGE64100U]

“Our aspiration and intent is for the mining industry to
grow,” Swan told Australia radio on Monday, a day after he
unveiled tax reforms designed to help the government return to
power at the next general election expected late this year.
Prime Minister Kevin Rudd is using the new 40 percent tax, to
apply from July 2012, to help boost pension savings for workers
in what he hopes will be a vote-winning formula.

But the mining industry, which accounts for more than half
of Australian exports, has hit back hard, led by Rio Tinto and
BHP Billiton, which dominate the nation’s hugely profitable
iron ore industry, the sector seen as most vulnerable to the
profits tax.

Well funded and a powerful lobbying force, the big end of
the Australian mining industry is preparing for battle and will
look to the upper house of parliament, where the government
lacks an outright majority, to block the tax.

“Altering the rules for existing multi-billion dollar
projects in mid stream — after large amounts of capital have
already been put at risk over many years — would be the worst
possible message Australia could send to investors,” said David
Peever, head of Rio Tinto’s Australian operations.

BHP Billiton warned that the plan would seriously
jeopardise future investments, with Chief Executive Marius
Kloppers saying it would lift the mining group’s local tax rate
to around 57 percent from 43 percent.

MINERS BRACE FOR SELL-OFF

Another global coal miner, London-based Xstrata (XTA.L: ),
said the new tax undermined long-term certainty for mining
projects.

“The government’s intention to change the basis on which
existing mining investments were entered into sends a
particularly worrying signal and undermines Australia’s
reputation as a stable investment destination, hampering the
ability of mining companies and other investors to assess the
basis for, or to commit to, future long-term investment,”
Xstrata chief executive Mick Davis said.

Investment bank UBS predicted that Australian mining stocks
faced a sell-off on Monday as investors digested news that it
said could send a chill through mining mergers and
acquisitions.

U.S. coal miner Peabody Energy (BTU.N: ) might now pause over
its $3.7 billion bid for the Australian miner Macarthur Coal
(MCC.AX: ) to consider the implications of the new tax, chief
strategist David Cassidy said at the weekend.

Swan has described the changes as historic. The government
will reimburse mining companies for state-based royalty
payments, and will cut the company tax from 30 to 28 percent by
2014.

One large mining state, Queensland, has already voiced
support for the new tax, noting that Canberra’s plan to
reimburse miners for state resource royalties meant that the
overall impact on Queensland’s state government coffers was
neutral.

But Western Australia, home to the iron ore industry and
controlled by a conservative government, has warned the tax
could destroy jobs and hurt investment.

Under the overall tax reform package unveiled on Sunday,
compulsory employer contributions to pension funds would rise
from 9 to 12 percent by 2019-20, boosting Australia’s A$1.2
trillion retirement savings pool, the world’s fourth-largest.

Funds management firms such as AXA Asia Pacific (AXA.AX: )
and AMP (AMP.AX: ) are expected to benefit from the pension
reform.

Australia faces elections in the second half of 2010 and
most likely in October, with Rudd ahead in opinion polls and
tracking to win a second term in office.
For more news on the tax changes, click on [ID:nAUTAX]

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(Reporting by Rob Taylor and James Grubel; Editing by Mark
Bendeich)

Australia govt & miners dig trenches in tax battle