Victory for mining companies as Australia dilutes tax

In what is seen as a caving-in to the demands of Australia's powerful mining industry, new prime minister Julia Gillard's government on Friday dropped plans for 40-per cent tax on booming mining company profits, defusing a damaging row with big business and clearing the way for national elections to be called at any time.

Mining companies had campaigned mightily against the proposed tax, and it was a key factor in the sudden ouster of Kevin Rudd as prime minister after he refused to negotiate. Friday's announcement from Gillard effectively removes the issue from the political agenda. Gilliard has ended a two-month fight that was hurting the Labour Party's re-election chances.

Mining heavyweights BHP-Billiton, Rio Tinto, Xstrata and others threatened to cancel billions of dollars worth of planned projects, jeopardising the creation of thousands of jobs, over the Rudd-proposed ''super tax'' which was forecast to raise A$12 billion ($10.1 billion) in its first two years.

Opinion polls showed an immediate boost for the ruling Labour Party when Gillard took office, and she may choose to capitalise on that popularity by calling elections as soon as this weekend. Elections must be called by year's end.

"The breakthrough agreement keeps faith with our central goal from day one: to deliver a better return for the Australian people for the resources they own and which can only be dug up once," Gillard said.

The new deal replaces the "super profits tax" of 40 per cent with a profits-based minerals resource rent tax of 30 per cent and will affect about 320 companies, down from the 2,500 that fell under the original tax proposal. It will apply only to the iron ore and coal industries - Australia's biggest exports - and would begin in 2012.