BILLIONS of dollars in potential revenue from Australia’s proposed mining tax remain in doubt, analysts say, with the future of the controversial levy in the balance amid a political stalemate.
Embattled Labor Prime Minister Julia Gillard has vowed to introduce the tax if she breaks the deadlock to form a government, whereas her right-
leaning challenger Tony Abbott has promised to dump the initiative.
As Gillard and Abbott last week negotiated with the three independent lawmakers whose vote is vital to holding a majority in parliament, the resources tax was again put up for examination.
“It’s up for negotiation. It’s one of the decision metrics for the support of the independents because not all of them can agree on what it should look like,” UBS economist George Thanerou said.
“It is something which will evolve over the next couple of weeks until we get a decision on which side of politics is going to be in power.”
The mining tax was meant to be the money-spinner that gave Australians a “fair share” of their nation’s mineral resources.
But the proposal for a 40 percent tax on profits as announced by ex-prime minister Kevin Rudd enraged the country’s most important industry.
Within two months Rudd had been toppled by Gillard, with the war of words with the mining industry providing ammunition for his ouster, and prompting the new premier to negotiate a new tax with the miners as a priority.
The revised tax, which is projected to bring in A$10.5 billion (US$9.5 billion) within two years of its 2012 launch remains a key discussion point as Gillard struggles to form a minority government with the rural independents, one of whom has backed a proposal for a re-examination of the tax.
“The question mark really is, one, who forms government in the minority sense, and two, the ability to get through the legislation,” said Tim Schroeders, a portfolio manager at Pengana Capital in Melbourne.
“There is a great deal of uncertainty surrounding that.”
Schroeders said Gillard would be hesitant to dump the Mineral Resources Rent Tax, the watered-down version she negotiated with mining giants BHP Billiton, Xstrata and Rio Tinto which taxes profits at 30 percent.
“Clearly Labor will need it in terms of balancing the books for the [election] promises that they’ve made,” he said.
Senior ANZ economist Amber Rabinov agreed that the market was much more comfortable with the tax after the rate was dropped and restrictions meant it only applied to iron ore and coal.
“There hasn’t actually been a lot of talk about it, I guess because of the uncertainty around at the moment, who actually will end up leading the government,” she said.
“It was never a dead certainty because it always had to get passed through the proper parliamentary processes.”
Rio Tinto said this week that it was confident Gillard would honour the memorandum of understanding they signed with her in July if re-elected.
“The prime minister is the prime minister, and I accept her word on that,” Rio Tinto’s Sam Walsh told The Australian yesterday.
Yet the miners are reportedly deeply troubled by Gillard’s alliance with the Greens, after she secured the support of the party’s one representative in the lower house as she attempts to reach the 76 seats needed to form government after the August 21 polls ended in a hung parliament.
Two weeks into the political stalemate, the markets have not collapsed, nor has the Australian dollar crashed, and analysts say the mining sector has a positive outlook and is banking on strong investment in the coming year.
They also said the market is more concerned with whether the United States might suffer a double-dip recession or how China’s slowdown is being managed.
“[The resource tax] is important, there is no question about that, but it’s been superseded in my view by probably more important near-term issues,” Schroeders said.