Gillard strikes deal on mining tax; company tax affected

Government backs down on mining tax, meaning cuts to company tax rate will not fall to 28 percent

By Brad Gardner | July 2, 2010

A fall in the company tax rate will be cut in half after the Federal Government gave into the mining sector on the proposed tax on super profits.

Renamed the Minerals Resource Rent Tax, Prime Minister Julia Gillard today announced the profits tax will fall from 40 to 30 percent and will not kick in until companies reach a 12 percent profit threshold.

The announcement follows fierce campaigning against former Prime Minister Kevin Rudd’s plan by the mining lobby. Rudd set the threshold at six percent.

The scheme will still be introduced on July 1, 2012, but the company tax rate will fall from 30 to 29 percent instead of 28 percent as announced by Rudd.

The revised figure will be introduced for small businesses from July 1, 2012 and one year later for medium to large businesses.

The three percent increase to superannuation from nine to 12 percent remains.

The Government expects the changes will lead to $1.5 billion less in revenue over four years, and the tax will be limited to a select group.

"Iron ore and coal will be subject to a new profits-based minerals resource rent tax at a rate of 30 percent," Gillard says.

"There will be no resources super profits tax."

The oil, gas and coal seam gas sectors will be dealt with under the Petroleum Resource Rent Tax and will be taxed at 40 percent for onshore and offshore projects once they reach the profit threshold.

By limiting the mineral tax’s coverage, Gillard says the number of affected companies will fall from 2500 to about 320.

The proposed rebate for resource exploration has also been scrapped, while Gillard says miners with profits below $50 million a year will not be bound by the tax.

Under the previous plan, the Federal Government would contribute 40 percent of the investment cost of a project and impose a 40 percent tax once the project reached the six percent profit threshold.

Despite the changes, the Government will still establish a $6 billion infrastructure fund to bankroll projects in the resource-rich states, Queensland and Western Australia,

Revenue from the tax is designed to fund $5.6 billion, with another $400 million allocated in the Budget.

A spokesman for Infrastructure and Transport Minister Anthony Albanese says details need to be finalised on when the money will start flowing, but guaranteed the investment will be made over 10 years.

"There will be a $6 billion infrastructure fund as part of the package," he says.

A group will be established led by Resources Minister Martin Ferguson and the former BHP Billiton chairman, Don Argus, to consult the industry on the new tax.

Gillard says the Government is focusing on iron ore, coal and gas because they are the most profitable commodities.

"These represent three-quarters of the value of our exports and resource operating profits and account for an even greater share of resource rents in the mining industry," a government statement says.

Mining giants BHP Billiton, Rio Tinto and Xstrata all supported the Government’s changes, agreeing they go a long way toward alleviating concerns over investment and the tax being applied retrospectively.

In a joint statement, the companies say they will work with the Government on the new tax.

Queensland Premier Anna Bligh welcomed the announcement, saying "it’s a relief" the bitter stoush between the mining lobby and the Federal Government is over.

Bligh says Xstrata has announced the resumption of activities at the Ernest Henry mine near Cloncurry in the northern part of the state.

"I would also expect continued progress on LNG projects near Gladstone now that the tax regime has been resolved," she says.

The Coalition opposes the profits tax and has vowed to rescind it in government if it is passed.

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