Despite being the most politically stable country in the Asia-Pacific, Australia has certainly experienced a raucous shake-up as of late.

Kevin Rudd, the former Prime Minister, recently resigned after failing to implement a reduction for his country's greenhouse emissions, in addition to an ill-timed proposal for a 40% tax on the profits of mining companies. Rudd's former deputy, Julia Gillard, is now Australia's first female Prime Minister, and although she's been awfully quiet on the details of the mining tax, most onlookers believe she's going to take a softer stance.

A fierce opposition
Although insiders believe Gillard to be a bit more tax-neutral, the new 40% tax, entitled the Resource Super Profits Tax (RSPT), has drawn criticism from mining companies worldwide.

U.S. coal miner Peabody (NYSE: BTU) recently said it would "factor in" the potential effects of the tax when considering its bid for Australian competitor Macarthur Coal (Pink Sheets: MACDF.PK). Diversified metal and mining company Xstrata (LSE: XTA), which generates about 25% of its revenue from the Australasia region, has announced the suspension of its copper exploration project in North Eastern Australia. Its CEO, Mick Davis, publicly denounced the tax as being "highly regrettable".

The result of the RSPT, if implemented as it stands, would increase the effective tax rate from 43% to 58% -- no doubt a staggering number when compared to 40% in the U.S. and 38% in Brazil. Big time players like BHP Billiton (NYSE: BHP) and Rio Tinto (NYSE: RTP) recognize the impact the RSPT could have and accordingly have been very outspoken opponents. Rio's CEO, Tom Albanese, has said that "It does change the relative attractiveness of Australia versus the other countries that we do invest in ... and I think that should be recognized."

It does seem like an odd time to propose such a drastic tax on what has been a very resilient and contributory sector for the Australian economy. During the financial crisis of the last few years, the mining industry has grown by 5% while other sectors have decreased or remained flat. It accounted for 6.7% of GDP in 2009 and was a hefty 38% of total exports. In addition, mining offers the highest paying jobs for Aussies -- $39 per hour versus the all-industry average of $25.

The RSPT could obviously have several detrimental impacts on the world's 19th largest economy as per GDP. As stated above, companies could suspend or cut projects all together. This would have a pretty substantial ripple effect; an outward business flight would dampen investment and reduce the number of potential jobs. According to the Mineral Council of Australia, about 500,000 people somehow depend on the industry for employment.

Lastly, if share prices take a dive because of the tax, it'll hurt Australians even more. Shares in mining companies constitute about 20% of the ASX200 (by market cap), and equities form the largest component of domestic household financial assets. A decline in share prices will inevitably reduce the overall wealth of everyday Australians. Just this past Friday, shares of Fortescue Metals (ASX: FMG), and Macarthur Coal dropped by close to 3%, even after hopes rose that the new Prime Minister will be softer on the tax.

So why the tax in the first place?
From a federal budgeting perspective, it does seem to make sense. Australia, similar to the U.S., has an aging population and underfunded social liabilities. Aussies must finance their pensions from tax revenues as opposed to investments, so the RSPT, in theory, would certainly help boost the government's coffers.

But why pick on the miners, you may be asking yourself?

First, the mining industry is the most profitable in the entire country. The sector's gross-profit-to-sales ratio is a bit more than 0.50, while the next highest industry, business services, musters roughly 0.15. This disparity has been in place since the early 2000s, and it's only increased with time.

Second, the mining industry has seen an enormous financial benefit, while at the same time grossly overstating its importance to the domestic economy of Australia. Former Prime Minister Kevin Rudd has said that mining companies have made roughly $80 billion over the past 10 years; only about $9 billion of that has been passed on to the Australian government. And although mining necessitates substantial capital expenditures, states have borne their fair share of the burden. Queensland, Victoria, and Western Australia have all seen infrastructure spending rise more than the royalties they've received on minerals -- often by more than double.

Lastly, while miners typically get paid well, there aren't really that many jobs to go around. Mining provided only 3% of total jobs as of February 2010; similarly, the sector only paid 3% of total wages in the last five years, while manufacturing contributed 14% and services contributed 73%.

So yes, of course the mining industry is an important part of Australia's economy. But it seems like it's had no problem raking in tons of cash while, for the most part, automating jobs and sending profits abroad. (This seems contrary to Alcoa's (NYSE: AA) claim that 80% of its revenue stays in Australia through wages, taxes, and dividends to shareholders).

The Foolish bottom line
It's hard to say whether or not the tax is going to pass in its current form, although it definitely seems likely to be watered down. The bigger question: How will it actually affect companies doing business in Australia? The IMF has recently said that it supports the RSPT and believes that "the tax proposal doesn't show adverse effects on Australia's economic prospects, either."

I'm apt to agree with the IMF on this one. Although mining companies could move their projects elsewhere, there is a certain benefit to working in a country that offers both civil and legal stability. Considering that mining projects entail vast capital expenditures, and often take years to bear fruit, it's in a company's best interest to work somewhere that promotes peace and order. According to the World Bank, Australia is the 9th easiest place to do business in the world.

And no one can deny the fact that Australia holds some of the largest mineral reserves on Earth. Sitting on top of iron ore, zinc, copper, nickel, bauxite, silver, industrial diamonds, and mineral sands, the continent is simply an economic powerhouse waiting for investment. This can be reflected in the drastic increase in the stock of FDI inflows -- a 155% jump from 2002-2007, and a solid 29% increase the year thereafter.

At the end of the day, Australia doesn't want to bite the hand that feeds it. I expect the RSPT to pass, but most likely at a lower rate, and with increased rebate possibilities. I also expect miners to continue their public outrage, but I doubt they'll do anything about it. Australia is too important a geographical asset for companies investing abroad, and a tax increase – regardless of its ultimate price -- won't be enough to keep away the big boys.

What do you think about the 40% tax hike? Will it ultimately drive companies away or is it a smart budgetary move by the Australian government? Sound off in the comments below!

Check back in at tomorrow for a roundtable of Motley Fool experts discussing the topic!

Jordan DiPietro owns no shares mentioned above. Try any of our Foolish newsletters today, free for 30 days. The Motley Fool has a disclosure policy.