Australia Passes 30% Tax on Iron-Ore, Coal Mining Profits

Australia passed legislation that will reap about $11 billion in taxes within three years from BHP Billiton Ltd. (BHP), Rio Tinto Group and other iron-ore and coal miners as the government seeks to turn its budget to surplus.

Prime Minister Julia Gillard’s Minerals Resource Rent Tax was passed in the upper house yesterday and will become law on July 1 after receiving backing from the ruling Labor party and the Greens, who hold the balance of power in the Senate.

Passing the legislation is a success for Gillard, whose predecessor Kevin Rudd was ousted amid a campaign by mining companies against a broader 40-percent levy that he initially proposed. Gillard, the country’s first female prime minister, is trying to hold together a minority government that relies on the support of independent and Green party lawmakers.

“It’s a victory for Labor and will help the nation’s bottom line,” said Norman Abjorensen, a political analyst at Australian National University in Canberra. “Most Australians probably believe the big miners can afford to pay more tax.”

The levy will aid the prime minister’s bid to return the budget, to be announced May 8, to surplus.

“We’ve got a spectacular resources boom,” Gillard said in an interview with Channel Nine television today. “It makes sense to take some money from the turbo-charged section of the economy and share it more broadly around the nation and that is what the mining tax does.”

‘Complex, Inefficient’

Fortescue Metals Group Ltd. (FMG), the nation’s third-biggest iron-ore exporter, said the tax was “unfair, narrowly based, complex, inefficient and will reduce investment and future jobs in the Australian mining industry.”

“As Fortescue has previously advised, the company has engaged senior counsel and will commence legal proceedings after the legislation has been enacted and legal opinion has been finalized,” it said in an e-mailed statement today.

Fortescue shares were 1.2 percent lower in Sydney trading at 3 p.m. today, compared with a 0.4 percent decline in the benchmark S&P/ASX 200 Index. BHP declined 0.1 percent and Rio Tinto stock fell 0.6 percent.

The expansion of China and other emerging economies has boosted demand for resources such as iron ore and coal in Australia, the largest shipper of the steel-making and energy- producing materials.

Gillard, 50, won support from independent lawmakers for the measure in the lower house last November after agreeing to set up a committee to examine coal-seam gas projects and to increase the threshold at which companies will be subject to the tax to A$75 million ($79.4 billion) from A$50 million. The Greens backed the bill after reaching an agreement with the government on offsetting any resulting shortfall in revenue.

Corporate Tax

Gillard has proposed that proceeds from the levy on mining profits will be used to reduce the corporate tax rate to 29 percent from 30 percent. The government’s plan to cut the corporate tax rate for businesses with annual revenue of more than A$2 billion may be blocked in the upper house after the opposition coalition and Greens said they opposed the measure.

The government also won backing for the laws by promising to provide A$6 billion in spending for roads, rail and ports, and increase the amount paid to people’s retirement savings to 12 percent of their salary by 2020 from the current 9 percent.

Labor sank to a six-week low in an opinion poll released March 13 after Rudd, who was ousted as prime minister in a June 2010 party coup by Gillard, stepped down as foreign minister on Feb. 22 to challenge her for the nation’s top job. He was defeated 71 to 31 in a Feb. 27 party ballot.

Trade Deficit

Australia posted its first trade deficit in 11 months in January, as weaker shipments of iron ore and coal contributed to the biggest drop in total exports in almost three years. The nation’s economic growth slowed to 0.4 percent in the fourth quarter from the previous three-month period, according to figures released on March 7.

The mining tax will raise A$10.6 billion in the three years after being implemented from July 1, according to government estimates.

Parliament goes on hiatus from March 22 and resumes May 8, when the government will announce its annual budget that it says will return to surplus. Under laws already passed, the government will put a tax on carbon emissions from July 1 by charging about 500 polluters A$23 a ton for discharges until the set price gives way to a cap-and-trade system in 2015.

To contact the reporter on this story: Jason Scott in Canberra at jscott14@bloomberg.net

To contact the editor responsible for this story: Peter Hirschberg at phirschberg@bloomberg.net

3:47

Feb. 23 (Bloomberg) -- Grant King, managing director at Origin Energy Ltd., Australia’s largest electricity retailer, talks about the company's financial results, business outlook, and the nation's new carbon legislation. Origin had a first-half profit after acquiring energy assets from the state of New South Wales. King also discusses the dispute within the nation's ruling Labor party. He speaks from Sydney with Rishaad Salamat on Bloomberg Television's "On the Move Asia." (Source: Bloomberg)

2:37

Nov. 29 (Bloomberg) -- Sam Walsh, chief executive officer for iron ore at London-based Rio Tinto Group, the world's second-biggest mining company, talks about the potential impact of Australia's planned taxes on resources companies and carbon emissions on the mining industry and economy. Walsh also discusses the outlook for acquisitions, iron ore demand, and Prime Minister Julia Gillard's plan to allow exports of uranium to India. He spoke yesterday with Bloomberg Television's Shraysi Tandon in Sydney. (Source: Bloomberg)