Australia will impose a new 40 percent tax on mining projects from July 2012 and boost pension savings for workers under a sweeping pre-election overhaul of its tax system, unveiled on Sunday.
The new Resource Super Profits Tax will anger big miners such as BHP Billiton and Rio Tinto and is set to raise about A$12 billion ($11 billion) in its first two years.
In return, the government will cut the company tax rate from 30 percent to 29 percent from mid 2013 and to 28 percent by mid 2014, and will refund state-based royalties currently imposed on mining projects.
We are under no illusions about how difficult it will be to win support for this package, Treasurer Wayne Swan told reporters.
Support will never be unanimous, and we understand there will be many who will oppose parts of this reform.
Swan said the new tax would help all Australians share the benefits of a prolonged mining boom, fueled by demand from China and India, which helped Australia avoid recession during the global financial crisis.
Australia faces elections in the second half of 2010 and most likely in October, with Prime Minister Kevin Rudd ahead in opinion polls and tracking to win a second term in office.
The government says the changes will lay the base for a 10-year reform program and won't seek to legislate for them until after the next election, when it could still face stiff opposition from a hostile upper house.
Some will say this will cost projects and jobs, the fear campaign will be large and the fear campaign will be well funded, Rudd told reporters.
With an election due within six months, the government also announced an increase in employer-paid pension fund contributions for workers, to 12 percent from the current 9 percent by 2019-20, boosting Australia's A$1.2 trillion retirement savings pool, the world's fourth-largest.
The contributions will rise by 0.25 points in 2013-14 and in 2014-15, then by 0.5 percent a year until reaching 12 percent, Swan said, sending an extra A$85 billion surging into retirement savings over 10 years.
The government will also contribute A$500 a year to pension-fund savings for low-paid workers. Older workers would receive a low tax rate on contributions up to A$50,000 a year, up from a A$25,000 cap now.
Swan said the pension fund industry would swell by A$500 billion by 2035, because of the changes.
The reforms will be welcomed by the funds industry, including big firms such as AMP and Axa Asia Pacific , as well as major banks that run large funds businesses, such as Commonwealth Bank of Australia .
BRACING FOR THE BACKLASH
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 Swan said the new tax would not discourage investment, and said governments had only received about A$9 billion extra from resource charges over the past 10 years, while resource profits were A$80 billion higher.
To further allay mining concerns, 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 A$700 million from 2012-13, to help pay for roads, ports, railways and water and electricity supplies for resource industries.
Rudd told reporters the tax changes would help stimulate and expand the mining industry, quoting independent modeling as finding that the mining activity would grow 5.5 percent over 5-10 years.
(Editing by Mark Bendeich and Rob Taylor)