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Jury out on tax changes under Gillard

AUSTRALIA has its first woman prime minister, however the jury is out on whether the appointment of Julia Gillard to the top job will result in a major overhaul in the federal government’s controversial resources super-profits tax.

MiningNews.Net
Jury out on tax changes under Gillard

Gillard was this morning elected unopposed as leader of the Labor party after receiving the backing of several factional heavyweights, including the Australian Workers Union who believed the party had a better chance of holding government with Gillard at the helm.

Wayne Swan was re-elected deputy prime minister.

As the dust settles following Gillard’s appointment, one of the big questions now is whether it is business as usual regarding the government’s proposed RSPT or whether she will look to make sweeping alterations to the tax.

At a press conference this morning Gillard showed some signs the government may shift ground on the RSPT, saying she would begin to "negotiate" with the mining industry over the proposed new tax.

However, Mine Life senior resource analyst Gavin Wendt is sceptical that a change in leadership would result in a change in thinking on the RSPT.

“I think the government is going to hope the change in leadership will be enough to get them through [the next election],” he told MiningNews.net this morning.

“They won’t have to worry about altering the tax. They can just leave it as is and then have another three years to whack the miners over the head and bring it in.

“I don’t think there will be anything in the way of effective consultation. I think they will probably be seen to be going through the motions, but I can’t really see them negotiating on the tax.”

Wendt said the negotiation process up to this point had been pointless because the government had steadfastly refused to alter any of the key parameters of the tax, including the 40% tax rate and the 6% rate at which the tax kicks in.

“They alter the tax in a major way then they potentially lose quite a large chunk of the revenue that was going to be generated from this tax,” he said.

“Part of their big selling process has been based on what to do with the money in terms of increasing super and reducing company tax rates, so you would have to think that if they would alter the tax dramatically, that the amount of money that would be coming into the coffers would be reduced accordingly and hence they would have to back down a lot of their spending promises, so effectively they have backed themselves into a corner.”

With Rudd’s approval ratings taking a hammering over recent weeks, Wendt believes that any change from Rudd was perceived as a good change for the Labor government going into an election.

“I guess the feeling is that she can’t do any worse a job of selling the tax than Kevin was doing,” he said.

“But I don’t think selling the tax was the problem, it really is an awful tax. It has nothing to do with tax reform as the government keeps trumpeting. It is just a dirty great cash grab that is going to significantly impact our industry.”

Atlas Iron managing director David Flanagan, an outspoken critic of the RSPT, told MNN the tax was a product of the Labor party and a product of the senior cabinet ministers, of which Gillard was one.

“My experience in dealing on this tax in the last month and a half is that a lot of the driving force was coming out of Kevin Rudd’s office,” he said.

“We didn’t see the same passion coming from the other ministers and I am hoping, because I am an optimist, that this means there is going to be a greater chance for real effective compromise on this, a compromise where we sit down and pull the whole thing apart.”

Flanagan also said the government ambushed the mining industry with its handling of the RSPT, which had created a trust issue between the government and the sector.

“They have done this to us … what’s next?” he said.

“[The RSPT] has created uncertainty and the mining industry’s access to capital has lost its mojo, so now we need to get that mojo back and I’ll look forward to try and work out how we can do that, because there is a big hill we have to climb up.”

Meanwhile, Macquarie Equities expects significant changes to the tax with Gillard at the helm.

“At this stage, it is expected that the government will either dramatically restructure the tax in an effort to negate this issue ahead of the next election, or opt to defer any finalisation of the form and substance of the proposed tax until after the federal election,”Dow Jones Newswires quoted a broker as saying.

“A further option for the government would be to simply broaden the current petroleum resource rent tax (PRRT) to incorporate the minerals sector.”

The reaction to Gillard’s appointment on the Australian Securities Exchange has seen BHP Billiton jump 1.7% to $39.83, while Rio Tinto has gained 2% to $71.98.

Fortescue Metals Group was trading 2.7% higher at $4.55 and OZ Minerals gained 2.5% to $1.045.

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