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Australia Mining Tax Approved By Senate

Posted: 03/19/2012 7:52 am

CANBERRA, Australia (AP) — The Australian government pushed a new 30 percent tax on big mining companies through Parliament on Monday but faces an uphill battle to reduce the tax burden on struggling companies outside the booming commodities sector.

The Senate passed the legislation 38 votes to 32, allowing the government to take a bigger slice of profits from a mining boom driven by Chinese and Indian demand for raw materials.

The boom kept Australia out of recession during the global financial crisis while creating what the government describes as a patchwork economy. Industries outside the mining sector are struggling against a strong Australian dollar and shortages of skilled labor as big mining wages lure away workers.

The government expects the tax will raise 3.7 billion Australian dollars ($3.9 billion) in the fiscal year starting July 1 from mining giants including BHP Billiton, Rio Tinto and Xtrata. The tax will only apply to iron ore and coal mining — Australia's two most valuable exports.

The government wants to use the new revenue to reduce the Australian company tax rate from 30 percent to 29 percent.

Small businesses with revenue of less than AU$2 million a year would receive the tax cut from July 1, under legislation to be introduced to Parliament this week.

The same lower tax rate would apply to big businesses from July 1, 2013, under legislation to be introduced to Parliament in May.

But the center-left Labor Party government does not yet have the support in the Senate to deliver the tax relief to big business.

While the Greens party is willing to support the government's tax cut for small businesses in the Senate, it won't support tax relief for big businesses. The Greens would prefer that money went to health and education.

The conservative opposition coalition opposed the mining tax and has vowed to reject the related tax cuts. The opposition argues that the mining tax would drive investment overseas and cost thousands of jobs in Australia.

Prime Minister Julia Gillard on Monday declined to comment on the state of her negotiations with the Greens or opposition to deliver the company tax cuts.

"We continue to be determined to provide Australian businesses, large and small, with a tax cut," she told reporters.

Her deputy and treasurer, Wayne Swan, told Parliament that the mining boom "will mean that we must maximize the opportunities that flow from that boom and spread them to every corner of our economy."

"This important reform will provide a revenue stream to ensure that businesses in particular that are not in the fast lane of the resources boom get some tax relief," he said.

The mining tax replaces the current state-by-state royalties system in which miners are charged for the volumes of minerals that they extract without reference to the soaring market values of those minerals.

China is Australia's biggest export market and high prices paid for iron ore and coal are providing Australia with its largest monthly trade surpluses in its history.

Chinese demand has driven the price of iron ore up 23 percent a year since 2005 and coal by 8 percent a year. Australian export volumes of iron ore and coal have grown at 10 and 5 percent respectively a year as the Chinese manufacturing sector grows.

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Filed by James Gerken  |