2 May 2010

Australia unveils new mining tax

6:02 pm on 2 May 2010

Australia will impose a new 40% tax on mining projects from July 2012 and boost pension savings for workers under a sweeping overhaul of its tax system, unveiled on Sunday.

The new Resource Super Profits Tax will anger big mining companies and is set to raise about $12 billion in its first two years.

In return, the government will cut the company tax rate from 30% to 29% from mid-2013 and to 28% by mid-2014, and will refund state-based royalties currently imposed on mining projects.

Treasurer Wayne Swan said the new tax would help all Australians share the benefits of a prolonged mining boom, fuelled by demand from China and India.

The government says the changes will lay the base for a 10-year reform programme and won't seek to legislate for them until after the next election.

Compulsory superannuation increased

With an election due within six months, the government also announced an increase in employer-paid pension fund contributions for workers, to 12% from the current 9% by 2019-20, boosting Australia's $A1.2 trillion retirement savings pool, the world's fourth-largest.

The government will also contribute $A500 a year to pension-fund savings for low-paid workers.

Older workers would receive a low tax rate on contributions up to $A50,000 a year, up from a $A25,000 cap now.

Backlash expected

The government is bracing for a backlash from the mining industry, which had campaigned against the new tax regime and described it as a tax grab rather than tax reform.

Miners in the resource-rich state of Western Australia, including iron ore miner Fortescue Metals Group, had warned that such a tax increase would undermine investment and exploration, and could force companies to shut down projects or move production facilities offshore.

But Mr Swan said the new tax would not discourage investment, and said governments had only received about $A9 billion extra from resource charges over the past 10 years, while resource profits were $A80 billion higher.

To further allay mining concerns, Mr Swan said Australia would now also give mining companies a tax rebate to offset the cost of resource exploration from July 2011, in a move it said would benefit 4,300 companies.

The government will also set up a new infrastructure fund, with an initial payment of $A700 million from 2012-13, to help pay for roads, ports, railways and water and electricity supplies for resource industries.