Australia's new PM claims mining tax victory

(EPA)

A breakthrough in the bitter row between the Australian government and the mining industry over a controversial new tax on resources has paved the way for an early general election.

Yesterday's deal, which produced a much watered-down version of the Labor administration's original plan to tax super-profits, was seen as a victory for new Prime Minister Julia Gillard, the country's first female leader.

Last night, some political observers were predicting an August poll as Labor harnessed the enormous political goodwill Ms Gillard has enjoyed in the past week. In less than nine days she has turned around the government's fortunes in a manner that few would have forecast in the dying days of Kevin Rudd's leadership.

After overseeing negotiations between the government and the miners in Canberra this week, the Welsh-born Prime Minister was quick to trumpet the "great result" as a major victory for Labor and the Australian people. "Today we're moving forward together," she said. "It's also essential that we have a stable and coherent Government and a positive basis for trust and I believe we have established that this week. Australians are entitled to a fairer share of the mineral wealth within our ground."

And she rejected suggestions that the Government had backed down in the face of an aggressive advertising and public relations campaign by the resources industry. Yet, in truth, the deal is much more favourable to the miners than the original proposal announced by Mr Rudd.

The new tax will be 30 per cent, 10 per cent less than before, and it will apply only to iron ore and coal, which are Australia's biggest exports. The analysts Liberium Capital say the effective overall tax rate on Australian mining companies will rise from 30 per cent to 42 per cent, as opposed to the estimated 55 per cent under Mr Rudd's plans.

The big mining companies, including BHP and Rio, were swift to welcome the agreement. Mining stocks rebounded on news of the compromise, with Rio Tinto, BHP Billiton and Anglo American rising by more than 1 per cent each. Xstrata was the strongest of the FTSE 100-listed miners, swelling by about 3 per cent. But there was no hiding that the concessions would have major financial implications, with the government tipped to suffer a shortfall in its revenue equivalent to about £1bn.

And there is no guarantee that the deal will be backed by the electorate who have been surprisingly supportive of the miners' campaign and critical of the government's tax policy.

Already the opposition Coalition parties are threatening to derail the new tax, with Liberal leader Tony Abbott warning it will be a key election issue. He insisted he was not swayed by yesterday's agreement and would move to block the tax in parliament. "I think it's clear from the Prime Minister's comments that battle lines are drawn for the coming election," he said. "The next election will be a referendum on tax. The government wants a new tax, the Coalition doesn't."

Julia Gillard, the former lawyer and trade unionist, who is refusing to reside in the official Prime Ministerial residence in Canberra unless and until she wins the next election, appears unmoved by the Opposition's criticism.

Clearly enjoying her roles as peacemaker and Prime Minister, she is fast gaining a reputation as a formidable negotiator with an equal mix of charm and political steel. It remains to be seen how long the honeymoon with big business and the Australian people lasts.