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Mining majors rejoice as Australia scraps supertax, proposes iron ore and coal profit levy

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Australia’s new Prime Minister Julia Gillard wasted little time overturning the controversial mining supertax law that many believe sealed the fate of her deposed predecessor Kevin Rudd. This piece of legislation will be replaced with a Mineral Resource Rent Tax (MRRT), which will be imposed only on iron ore and coal resources from 1 July 2012 and will not be applied retrospectively.

This decision enjoyed a warm welcome from Australia operating mining giants including Rio Tinto (LON, ASX:RIO), BHP Billiton (ASX: BHP; LON: BLT) and Xstrata (LON:XTA), which issued a joint statement in London this morning to praise the government’s proposal, stating it represented “significant progress” towards a taxation regime that satisfied the industry’s “core principles.” The companies added that Australia would now not be disadvantaged as an investment destination, following statements that the super tax, if introduced, would have had an adverse impact on the country’s welfare and it would have taken years to recover from the negative impact on the economy.

According to the new law, a 30% tax will apply to the taxable profit at the resource and will be calculated on an individual taxpayer’s direct ownership interest in the project. Companies with low resource profits of around A$50 million per annum would be exempt from MRRT liability. Only 320 companies will be eligible to pay the new tax, compared to 2,500 which would have been hit by Rudd’s supertax.

Rudd was ousted as both the leader of the Labour Party of Australia and PM following a series of controversial legislative initiatives that included higher tobacco taxes, delaying the carbon emissions trading scheme and stricter control of the internet. As a result, Rudd plunged in polls to threaten his party’s chances of re-election. This led to a leadership challenge from Gillard and Rudd's resignation after losing the support of his own party.

According to press reports, the change of its taxation plans will strip Australia of A$1.5 billion in revenues in the next 2 years.

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