Mining Tax Clears, but Gillard on Shaky Ground

By Matt Siegel, New York Times

Prime Minister Julia Gillard celebrated on Tuesday the passage of a controversial tax on profits generated by 호주’s enormous mining boom, a much needed legislative victory for the embattled leader, who recently survived an embarrassing leadership challenge from within her own Labor Party.

Ms. Gillard hailed the Minerals Resource Rent Tax, as the legislation is known, after it passed the Senate late Monday night by a vote of 38 to 32 with the support of the Greens. The law, which is to go into effect July 1, places a 30 percent tax on the profits of the largest iron ore and coal miners in Australia.

Ms. Gillard’s government says the law is meant to achieve a more equitable distribution of the wealth generated by Australia’s decade-long mining boom, which has largely shielded the country from the impact of the global financial crisis.

“Australians know how important the mining industry is, but they also know that we can only dig up and sell the resources once,” Ms. Gillard said after the bill had been voted into law. “The Gillard government believes all Australians should share in the benefits of the mining boom, not just a fortunate few.”

But the law has raised the ire of some miners and business groups, who argue that it threatens to derail the country’s economic performance. They have pledged to challenge it in court.

Analysts say that although Ms. Gillard is wary of alienating the mining industry, whose vocal opposition to a similar tax proposed by former Prime Minister Kevin Rudd contributed to his political downfall, she could not be seen as backing down under pressure in her weakened political state.

Mr. Rudd, whom Ms. Gillard replaced in a 2010 party coup, had proposed a similar tax at a higher rate of 40 percent, but he abandoned it as his poll numbers plunged. His supporters blamed a relentless media campaign that they said was funded by a handful of powerful mining and business leaders. The Labor Party dumped Mr. Rudd that same year in favor of Ms. Gillard.

Last month, Mr. Rudd challenged Ms. Gillard, whose own poll numbers had sunk, in an ultimately unsuccessful bid to regain the leadership of the party and the country. Though Ms. Gillard’s supporters in Parliament handed Mr. Rudd a resounding defeat, the prime minister walked away weakened even more and in need of a political victory, analysts said.

It is the institutional memory of those events that has driven the government’s approach to the crafting of the new tax, Paul Bloxham, chief economist for Australia and New Zealand at HSBC, said in an interview.

Mr. Bloxham argued that Ms. Gillard’s wariness and desire for a victory had resulted in a weak bill unlikely to address the serious economic distortion he says has resulted from the mining boom.

“I think the mining tax got completely watered down because it was a part of the reason that the prime minister who introduced it lost his job,” Mr. Bloxham said Tuesday.

“They still had set out to introduce one of some kind, and so they watered down the original proposal,” Mr. Bloxham said. The resulting law, he continued, “is expected to get the government $10.6 billion worth of revenue over the next three years, which turns out to be about 0.2 percent” of gross domestic product per year. “It’s a pretty small deal.”

The tax is expected to affect about 30 large mining companies, including top-tier global miners like BHP Billiton, Rio Tinto and Xstrata, which were reported to have been consulted by the government during the writing of the bill and were not expected to challenge it in court.

But other large miners, like Fortescue Metals Group, one of the top three producers of iron ore in Australia, have threatened to go to court over the law. Cameron Morse, a spokesman for Fortescue, said Tuesday that the tax was “unfair, narrowly based, complex, inefficient and will reduce investment and future jobs in the Australian mining industry.”

“Fortescue is not opposed to paying our fair share of taxes,” Mr. Morse said in an e-mail. But the law, he said, “is a poorly designed tax, drafted by the big miners behind closed doors to minimize their tax exposure at the expense of the rest of the industry.”

Australia is due to hold elections before the end of next year, and opinion polls currently have Labor well behind the opposition coalition led by Tony Abbott, who has made repealing the mining tax and other signature Gillard legislation, like an emissions trading plan passed last year, central to his campaign.

Mr. Bloxham, the economist, argued that the government’s softening of the tax in the face of likely industry pushback illustrated how precarious Ms. Gillard’s position remains. “It’s taken a lot of political capital to get a very small tax, and it shows how powerful the private interests can be,” he said.

03/21/2012 – 12:00