The Minerals Council of Australia has welcomed Julia Gillard to the Prime Ministership with a demand that she gut the RSPT completely if there is to be any end to the mining industry’s campaign against Labor.

Minerals Council chairman Ian Smith wrote to the new Prime Minister on Friday demanding an urgent meeting with Gillard or Wayne Swan and Martin Ferguson early this week to enable a backdown on the tax.

In the letter, addressed to Prime Minister Gillard, with Deputy Leader Wayne Swan and Resources Minister Martin Ferguson cced in, Smith opens by congratulating Gillard on her Prime Ministership.

Smith then flags the mining industry’s willingness to suspend their advertising on the proposed tax as a “sign of goodwill.”

But Crikey understands from a senior mining industry source that the Minerals Council wants an offer from the Government before the end of this week, or it will resume its campaign against Labor.

Prior to being wrong-footed by Gillard’s suspension of the Government’s advertising campaign for the RSPT, the Minerals Council had been planning a mailout to 50,000 households in up to 20 marginal electorates aimed at defeating Labor candidates.

Smith tells Gillard that there are five issues that the Government must back down on:

  • the 40 per cent rate;
  • the RSPT “should not be applied retrospectively to existing projects”;
  • the RSPT must be “differentiated by commodity”
  • the tax must be “resource-based –- it should not tax infrastructure or secondary processing; and
  • efficiency — “changes must not compromise the principle of competitive neutrality and minimise deadweight losses to the economy. The absence of complete agreement with the States on the treatment of royalties will prevent real reform.”

Smith writes:

“…unless all these elements are addressed in a comprehensive way the minerals resources super tax will remain fundamentally flawed. It will continue to damage Australia’s reputation as a low sovereign risk destination for foreign direct investment.”

Smith also attacks the possibility of a shift to a PRRT-based model:

“Any suggestion that the Petroleum Resource Rent Tax (PRRT) model is suitable for the minerals industry reflects a fundamental misunderstanding of the differences between the petroleum industry and the minerals industry.”

The mining industry has been deeply concerned that an offer by the Government to shift to a PRRT-based model would leave it looking obstinate and unwilling to engage in genuine compromise, which would undermine its successful advertising campaign against the tax.

Last week, the Minerals Council rushed out hastily-commissioned modelling by KPMG purporting to show little improvement for the industry if a higher uplift rate was applied — even as high as 15%, from the currently-proposed 6% — and transferability and deductibility of losses was abandoned, as part of a plan to avoid being portrayed as stubborn holdouts.

Smith warns Gillard “given the global nature of our industry and the Australian economy, every day the uncertainty over the proposed minerals resources tax is allowed to continue greater damage occurs to Australia’s national economic interest.”

Contrary to Smith’s claims, however, since the announcement of the tax, metals and mining stocks have outperformed the ASX 200, while foreign competitors like Vale and Anglo-American, who RSPT critics claim stand to reap a bonanza from havoc wreaked on the Australian mining industry, are trading well below their early May prices on overseas markets.

Peter Fray

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Peter Fray
Editor-in-chief of Crikey