TAX NEWS - JUNE 2010

Australia Tax: Restart tax plan - Kevin Rudd's man Rod Eddington

by Dennis Shanahan and Jennifer Hewett, 03 June 2010 -- KEVIN Rudd's chief adviser on major building projects has told the government to restart its proposed resource super-profits tax from scratch and engage in proper consultation with the mining industry.

Rod Eddington, the head of Infrastructure Australia and a board member of mining giant Rio Tinto, said last night good policy process had been absent in the debate about the new tax.

He said the negotiation process with miners left much to be desired, saying good policy flowed from proper process while "a failure of process can even lead to serious divisions in the community".

Addressing the Minerals Council of Australia annual dinner in Canberra, he urged the government to comprehensively consult the mining industry. "The process must begin now," he said. "Cool heads must prevail."

Sir Rod's comments came as billionaire mining chief Andrew Forrest claimed Treasury secretary Ken Henry told him privately the proposed tax was pointless if one of its key components - a pledge to refund 40 per cent on failed projects - were abolished.

One of Australia's most respected economists, Chris Richardson of Access Economics, also rejected the modelling behind the RSPT, effectively telling Treasury it got it badly wrong.

Tony Abbott yesterday warned the mining industry not to listen to "honeyed words" from the Prime Minister about consultation and compromise on the proposed mining tax and urged the industry to continue the fight against the $12 billion impost.

And Chang Zhenming, head of the biggest Chinese investor in the Australian mining sector, Citic Pacific, told The Australian he was "shocked" and concerned about the potential impact of the tax on his $US5 billion ($6bn) iron ore project in the Pilbara region of Western Australia.

The government is fighting a furious backlash from the mining industry to its plans to impose a super-profits tax on the sector, which were announced in its response to Dr Henry's tax review early last month.

Miners claim there was inadequate consultation with the industry before the tax - which will raise at least $9bn a year - was announced and that they can't negotiate with the government's consultation panel because of its narrow guidelines.

Sir Rod - who was appointed by the government to provide advice on significant infrastructure projects, to sort out the priority for spending billions of dollars in commonwealth funds and to remove "disincentives to greater investment in public infrastructure" - said last night the importance of the new mining tax meant there had to be proper consultation over a long period.

He was backed by Leigh Clifford, the chairman of Qantas and a former Rio chief, who told the MCA there was room for a profit-based tax on the industry but what had been put forward was "not good policy . . . was ill-considered and poorly implemented".

Amid speculation that the Prime Minister and Wayne Swan were preparing to withdraw the planned 40 per cent refund and increase the rate at which the tax kicks in as part of a compromise deal, Mr Forrest said yesterday Dr Henry told him last month that the logic of the tax would "collapse" if it were significantly altered.

"Ken Henry himself does not believe this tax works if they tinker with it," he said.

The Fortescue Metals Group chief said it was clear that financiers - including those for his planned multi-billion-dollar iron ore expansion projects in the Pilbara - placed little or no value on the 40 per cent guarantee and were walking away from the Australian mining sector.

Mr Forrest launched a scathing attack on Mr Rudd, accusing him of targeting the mining industry for "purely political purposes" and launching an "aggressive misinformation campaign".

"It leaves me aghast that we have a Prime Minister prepared to trade the sovereign status of his country for a chance at improving an election process or plugging a hole in a budget," he said.

Mr Richardson, chief of Access Economics, said the tax would slow the development of new projects and that while minerals might not be mobile, investment in them was. He said the prospect of the tax raising mining output - as the Henry review predicted - would take 50 to 100 years and would only occur once Australia had returned to its intitial, relative position on the global cost curve.

A Treasury spokesman said Dr Henry was on leave and had no comment.

The Opposition Leader vowed to fight the tax with "every breath", saying Mr Rudd would offer consulation all the way to the election to stifle the argument over the tax.

Mr Rudd did not address the MCA annual dinner last night but did host pre-dinner drinks in his parliamentary suite for senior mining company executives.

The talks over drinks last night came a day after Mr Rudd publicly called for consultation between the government and industry rather than "through the media".

Earlier, Resources Minister Martin Ferguson told the MCA seminar the government wished to "work with" the mining industry and offered "generous transition" concessions in negotiations about the new tax.

"The government wants to continue to work with you," Mr Ferguson said. "We are only at the very beginning of what will be a long and detailed process."

But Mr Abbott told mining company executives in Canberra Mr Rudd would attempt to get them to drop their campaign against the RSPT before the election and then a re-elected Labor government bring it in afterwards.