Ever since former Australian Prime Minister Kevin Rudd faced intense opposition over his proposed 40% tax on mining companies, the Australian stock market has been in flux.
But after he stepped down, new Prime Minister Julia Gillard seemed poised to water down the controversial tax, which was intended to spread Australia’s wealth a bit more evenly, considering the country's great abundance of natural resources. Earlier this week, our Motley Fool experts debated whether the RSPT would pass in its current form, and what impact it could have on investors.
It seems that today, as reported by The Wall Street Journal, there is still hope for the mining sector after all.
The Aussie government kept the 40% tax on onshore oil and gas projects, but cut it to 30% for mining -- a drastic decrease. More importantly, among miners, the tax will only apply to iron-ore and coal mines. In addition, the deal raised the profit threshold at which the tax will take effect. Big-time players such as BHP Billiton (NYSE: BHP), Rio Tinto (NYSE: RTP), and Xstrata have all apparently signed on to the deal.
However, not everyone is jumping up and down on the news. According to The Wall Street Journal, Australia's main opposition Liberal-National coalition of center-right parties on Friday reiterated its vow to scrap the tax if it wins the next election.
"We are going to oppose this tax because this tax from the Rudd-Gillard government is a bad tax for investment, it is a bad tax for jobs and it is ultimately a bad tax for Australia," Coalition Treasury spokesman Joe Hockey told Australian Broadcasting Corp. radio. "If this tax passes through the parliament, we will rescind it," he added.
Apparently, changing the tax to 30% will cost the Australian government about US$1.26 billion over a four-year period. In order to try to balance that loss of revenue, the Aussies will now reduce a proposed general business tax cut in half, lowering rates from 30% to 29% instead of the initially expected 28%. Hopefully, fiscal conditions will improve in the meantime as well, because Australia faces similar deficit and aging-population concerns as the U.S.
Is the 30% compromise a good move by the Australian government, or do you think they caved in to the pressure of big multinational companies?
Sound off in the comments below!
