Australia Mining Tax Changes to Focus on Iron Ore

Talks starting next week on changes to Australia’s planned 30 percent mining tax will focus on when the levy should apply to iron ore production, Resources Minister Martin Ferguson said.

“The question is at what stage in the production line does the taxing point kick in,” Ferguson said in a phone interview today. “This is the start of the process” for negotiations.

Prime Minister Julia Gillard, who clinched a deal with independent lawmakers and a Greens Party member to form a minority government after her Labor Party lost its majority at the Aug. 21 election, is yet to win their support for the levy in the world’s biggest shipper of iron ore. Laws intended to go to Parliament late next year will now be subject to negotiation with Gillard’s partners.

The government set up a committee, chaired by former BHP Billiton Ltd. chairman Don Argus, to hold talks with the industry about how to implement the levy, including tax breaks for depreciation. The committee holds its first meeting on Sept. 20 and may take until next year to complete its discussions, Ferguson said.

“The government went to the election with a package that represented the outcome of detailed discussions as a compromise and regarded as fair outcome for all sides,” Ferguson said. “I’m not seeking to have everything wrapped up by Christmas.”

The Greens want the tax raised to the 40 percent levy on resources proposed by Gillard’s predecessor, Kevin Rudd, and expanded to include uranium, while independent lawmaker Andrew Wilkie says the watered down levy is “unsatisfactory.”

Lower Levy

Gillard pledged in July to set the lower levy that only applies to iron ore and coal in a deal signed with BHP, Rio Tinto Group and Xstrata Plc after talks that excluded smaller miners.

The committee plans to start talks with industry across Australia over the next month and will release a timeline for discussions on Sept. 24. The aim is to “work through any outstanding concerns, providing certainty,” Ferguson said.

BHP, Rio and rival coal and iron ore companies will pay A$10.5 billion ($9.8 billion) more in tax in the first two years of the levy from mid-2012, according to government estimates.

“From an industry perspective there’s a desire to resolve some of these issues of principles sooner rather than later,” Ferguson said. “Don Argus and I will be seeking to discuss the work plan with the transition committee and get on with the job.”

Whether the levy applies to the raw resource or value added by the miner is “important in an industry such as magnetite,” where the resource is processed into pellets used for steel, Ferguson said. Changing the rate and expanding the levy to other commodities won’t happen, he added. Magnetite is a lower grade of iron ore that needs some processing before being shipped.

The committee’s other members are Treasury Executive Director of Tax Policy David Parker, ex-Woodside Petroleum Ltd. executive Keith Spence, Energy Resources of Australia Ltd. Chairman David Klingner, Toro Energy Ltd. chair Erica Smyth and Chris Jordan, chairman of KPMG New South Wales.

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