Mining Tax Bill Passes Australia's Lower House
International Mineral Mining Development Holdings Report: The Australian parliament's lower house has passed divisive laws for a profit tax on mining companies.
- (1888PressRelease) November 29, 2011 - Australia's controversial tax on the country's mining industry, cleared a key hurdle Wednesday when it passed through the lower house of parliament. Prime Minister Julia Gillard's fragile minority government gained support from the Greens to enable the Minerals Resource Rent Tax Bill 2011 to scrape through the House of Representatives after a marathon session in the early hours. London-listed shares in Rio Tinto fell as much as three per cent, before recovering to close the day down 2.3 per cent at £29.86. Woes in the Chinese economy also weighed on the stock. The ruling Labor Party secured support from independent lawmakers and the minority Greens Party for the levy, known as the Mineral Resource Rent Tax, or MRRT, which is aimed at redistributing the proceeds of what politicians describe as a once-in-a-century mining boom. BHP Billiton Ltd., the world's No. 1 mining company, declined 3.1 per cent in Sydney after Australia's House of Representatives passed the law. The MRRT is a compromise following a previous version of the tax that was vociferously opposed by the mining industry, in a campaign that contributed to the internal party revolt against former Prime Minister Kevin Rudd last year.
Australia is the world's biggest exporter of the iron ore and coking coal used in steelmaking and the second-largest exporter of thermal coal used in power stations. The Mining Resources Rent Tax (MRRT), which still needs to pass the Senate in early 2012 before being implemented mid next year, will impose a 30 per cent tax on profits of all new and existing iron ore and coal projects. The tax is aimed at tapping into the country's mining boom and redistributing the profits to other sectors like manufacturing and tourism, which are lagging in growth. The government expects the tax, which still has to pass through the Senate next year, to raise $11.1bn in the first three years, although some analysts and companies question whether tax receipts will meet expectations. The controversial law, which brought down the Rudd government last year, has been slammed by critics who argued that the tax will hurt Australia's appeal to foreign investors and undermine the sector, especially the smaller and more vulnerable mining firms.
Former prime minister Kevin Rudd had first proposed a 40 per cent tax on mining companies' "super" profits last year in an effort to even out the growth in Australia's economy, where resource companies are prospering even as manufacturers and tourism operators struggle. Demand from China and India for these raw materials has raised wages and brought jobs to remote areas such as Western Australia's dusty Pilbara region, but also has pushed up the cost of the living elsewhere in the country. That has prompted fears Australia has developed a two-speed economy, with non-mining industries weakened and manufacturing jobs moved to cheaper locations offshore. The MRRT will apply to all companies earning more than 75 million Australian dollars (US$73.7 million) in annual profit from coal or iron-ore production. It will be levied at an effective rate of 22.5% on all profits earned more than 7% above the long-term government bond rate meaning that it would only be paid on earnings above a 12% profit margin.