Australia's new Prime Minister Julia Gillard attends a news conference at Federal Parliament House in Canberra.MICK TSIKAS
A shakeup of power in Australia on the heels of a plan to sharply hike resource taxes will make other countries think twice before targeting industry to shore up government coffers.
Australian prime minister Kevin Rudd, who shocked the mining world last month with his Resource Super Profit Tax proposal, was ousted and replaced by deputy Julia Gillard as part of a revolt within the once-popular centre-left Labor party.
While the hefty 40-per-cent tax isn't solely to blame for Mr. Rudd's political demise, the party's popularity sank soon after the proposal was introduced in early May.
Mining companies, enraged by the levy, threatened to pull billions of dollars worth of project spending from the country, warning that it would kill jobs and stunt economic growth.
The leadership turmoil shows the tax proposal lacked planning and backfired.
"I think the political lesson is it's suicide, and that if something like this is going to be put in place it's going to be a lot more thoughtful and a lot less painful," said Wayne Atwell, managing director at Casimir Capital LP.
Within hours of taking over leadership on Thursday, Ms. Gillard vowed to revisit the tax proposal, and immediately cancelled the government's $32-million advertising campaign to promote it.
The mining industry, in turn, dropped its campaign against the tax, as both sides agreed to bargain for another proposal.
Ms. Gillard said she is "throwing open the government's door to the mining industry," and asked in return that the industry "throws open its mind."
While it's unlikely the resources tax proposal will be dropped altogether, given the government's reliance on the levy to help balance its books, a watered-down alternative is expected.
The Australian government had estimated it would raise $2.6-billion (U.S.) from the tax in 2012-2013, and $7.8-billion the following fiscal year.
The Australian experience will also serve as a blueprint for other countries looking at industry taxes to bolster government finances. Analysts have pinpointed Brazil, Mongolia and countries in Africa as the most likely to follow Australia's lead with a new tax on mining profits.
The tax remains a threat to the mining industry, which is suffering from a drop in prices in the past few months amid fears of an economic slowdown due to Europe's debt troubles and a cooling of China's economy.
BHP Billiton Ltd., the world's largest miner, which argued vehemently against the tax, welcomed the offer to negotiate a new proposal with the government.
"BHP Billiton has consistently stated that any new resources tax must be prospective, competitive, differentiated and resource-based," chief executive officer Marius Kloppers said in a statement.
Rio Tinto, another major miner, called talks between the government and the industry a "positive first step," but also said the government needs to end the uncertainty the tax plan is having on the economy "as soon as possible."
The current proposal would raise the tax rate on Australian profits for some miners to about 57 per cent from 43 per cent. That compares to about 23 per cent in Canada and up to 38 per cent in Brazil.
The tax would be at a rate of 40 per cent on all profits from mining projects with a rate-of-return of 6 per cent or higher.
The new proposal is expected to raise that threshold to between 10-to-15 per cent, and possibly restrict it to new projects only.
"While a number of points could be adjusted in favour of the mining groups … we still think a very favourable compromise for mining groups is unlikely," Oddo Securities said in a research note.
The tax could still be killed if Australia's Labor party loses the next election, expected to happen as early as this fall. The opposition has vowed to kill the tax.