Australian tax a lesson for other mining nations

　　The Australian government, under Prime Minister Julia Gillard, has unveiled a compromise deal that will drop the previously announced "resource super profits tax" (RSPT) in favour of a profits-based "minerals resource rent tax" (MRRT) of 30%.

　　Embraced by the world's largest resources groups as "significant progress towards a minerals taxation regime that satisfies the industry's core principles", the MRRT goes some way to satisfying resource sector fears that Australia's mining tax regime would stifle investment.

　　RSPT, or the super tax, would have seen Australia levy the world's highest minerals sector taxes.

　　Big resources groups said the new tax would push their tax rate from 40%-50% to 50%-57%. They warned of the effect on investment and capital spending. Some, like Xstrata, shelved projects. Analysts feared spending would go to other countries.

　　By taking the battle off the political agenda, Gillard has reaffirmed Australia's position as a destination for mining investment. Her deal has prompted market watchers to say the new tax regime might unlock a stalled pipeline of mergers and acquisitions.

　　The implementation of the new tax, which is likely to become effective this month, is expected to see billions in expansion projects resumed.

　　According to ratings agency Moody's, the new MRRT is "far less harsh" than RSPT. The new tax applies only to iron ore and coal, Australia's biggest exports. All other resources are exempt.

　　Besides the lower 30% versus 40%, MRRT carries a 25% allowance for extraction activity. For existing projects, the starting base for project assets will be market value depreciable over 25 years versus book value with depreciation over five years. Investment after this month can be written off immediately.

　　The new tax is expected to affect only 320 companies, down from the 2500 under the original plan, and the UK Press Agency estimates revenue brought in will be 83% less than that of the original plan.

　　The Australian government has learnt the hard lesson South Africa learnt with its mining charter. It now knows consultation is not negotiable and uncertainty in one of its largest sectors could alter its sovereign risk.