Mining industry claims triumph over Henry tax as Rudd goes
Friday 25 June 2010
The mining industry could barely contain its collective glee yesterday as Australia's new Prime Minister, Julia Gillard, offered fresh talks on the country's proposed resources super tax, which the miners have spent millions of dollars campaigning against over the past two months.
The change of policy from the Canberra administration comes after Ms Gillard deposed the former premier, Kevin Rudd, ahead of a general election later this year. The development will have been met with cheers in the boardrooms of London-listed Rio Tinto, BHP Billiton and Xstrata which, along with others operating in Australia, have openly opposed the 40 per cent levy, known as the Henry tax.
One source at a major UK miner said that Mr Rudd's removal was because of the tax's widespread unpopularity.
It wasn't. While Mr Rudd was criticised for his inflexible stance, a higher levy on the industry remains popular with many sections of Australian society, most of which do not have the funds to organise a campaign similar to the one orchestrated by the miners.
In fact, Mr Rudd was forced out after backtracking on a promise to implement a carbon trading scheme.
Ms Gillard immediately withdrew a government advertising drive in return for a similar concession from the industry, which used the change of prime minister to reassert its case for the scrapping of the levy.
"Rio Tinto has no doubt the Resources Super Profits Tax was flawed policy and that it has already caused damage to Australia's reputation and the national economy. Rio Tinto believes it is fundamental that the negotiation process ensures any tax reform proposal is not applied retrospectively, and delivers an effective tax rate that retains Australia's international competitiveness as an investment destination," the Anglo-Australian company said in a statement.
"As a sign of good faith, Rio Tinto has suspended its national advertising campaign on the mining tax in line with today's request by the Prime Minister.
"Rio Tinto says this commitment is dependent on the Government's willingness to properly engage on the fundamental principles outlined above."
Rio Tinto is likely to be the hardest hit if the tax comes into effect, seeing its effective tax rate in Australia rising to about 57 per cent. BHP Billiton and Xstrata issued similar statements.
Last month, Mr Rudd insisted that the charge was necessary to ensure that Australians got a fair deal from the profits made by mining companies.
"The Australian people deserve a fair return on the resources which they themselves own," he said.
Arguing that some of the biggest miners are largely foreign-owned, and that these groups had made $80bn (£53bn) over the last 10 years, Mr Rudd said: "At the same time governments, on behalf of the Australian people, have received only an additional $9bn over that period.
"That means these massively increased profits, built on Australian resources, are mostly, in fact, going overseas."
Resources groups have complained that the tax could be imposed retrospectively, while also threatening that it could jeopardise investment. The collapse last month of the takeover of Macarthur Coal, an Australian miner, was blamed on the proposed levy.
Industry analysts differ on whether the tax will now be killed off, but agree that the change of leadership in Canberra could extend the period of uncertainty for the sector. "We still believe the Australian Labor party will look to implement a mining tax," said Olivia Ker at UBS.
"However, following today, it seems almost assured that a diluted version of the initial version of the [Henry tax] will eventuate. However, given the proposed new negotiation, the resolution of details may now be further in the future, opening up a longer period of uncertainty for the miners."
Indeed, news of Canberra's softer position did nothing for the miners listed on the London Stock Exchange, which tracked down yesterday after the US Federal Reserve warned that the recovery in the US economy faced the prospect of running out of steam.
The comments increased the pressure on the sector's shares, which are typically about 10 per cent down on three months ago, largely as a result of the uncertainty created by the prospect of the Henry tax.
While most of the miners operating in Australia have said that they are reviewing operations, the outstanding project in the country, Rio Tinto's and BHP Billiton's huge $116bn proposed iron ore joint venture in Pilbara, Western Australia, will go ahead if the two companies can persuade the worldwide competition authorities to give the project the green light.
The two agreed a deal to pay higher royalties to the state government in Western Australia earlier this week, but the deal still faces a number of regulatory hurdles.
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