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Australia Mining Lobby Key to Election Battle

01/30/2013 | 02:53am US/Eastern

By Rhiannon Hoyle and Ross Kelly

SYDNEY--Australia's mines will be a key battleground ahead of national elections in September that will test voter support for controversial taxes on resources profits and carbon emissions.

Prime Minister Julia Gillard has been bruised by past clashes with the mining lobby and politicians opposed to what were key reforms championed by her ruling Labor Party. The industry, which accounts for the largest share of Australia's exports, is one of her government's biggest detractors.

While she claims success at getting flagship legislation into law, critics say the policies were watered down under pressure and are largely ineffectual. Many mining experts blame Ms. Gillard's government for making the industry less competitive, with higher costs eroding profits. Tony Abbott, the leader of Australia's conservative Liberal-National opposition, was quick Wednesday to reiterate his pledge to tear up both taxes should he win the election.

Mining lobby groups are already indicating they will back him to the hilt.

The Minerals Council of Australia, or MCA, said its top election issue is establishing "internationally competitive tax and royalty arrangements", effectively calling for lighter regulation. It has several more demands like growing the nation's skills base through better university education and technical training, and cutting red tape that has bogged down many multibillion dollar mining projects.

"The need for change in Australia's minerals sector must be recognized," said Ben Mitchell, a spokesman for the Minerals Council. "We need to set about regaining world leading competitiveness."

The council, whose members produce more than 85% of Australia's annual mineral output, was a vocal critic of Labor's moves three years ago to hike taxes on the mining industry just as commodity prices were surging. It ran an expensive advertising campaign credited with forcing Labor to blunt the levy, which is now applied only to excessive profits on iron ore and coal.

The nation's largest mining companies, including BHP Billiton Ltd. (>> BHP Billiton Limited) and Rio Tinto PLC (>> Rio Tinto plc), declined to comment Wednesday.

The opposition has held a consistent lead in polls conducted since Labor narrowly retained power in 2010 by forming a minority government with independent lawmakers, although Labor has been closing the gap.

The resources sector "will likely be the one that displays the most reaction to campaign developments in the lead up to September 14," said Tim Waterer, a senior trader at CMC Markets in Sydney. "Traders will have a very close eye on the mining tax and any potential changes to that if there were to be a change of government."

Mining accounts for nearly 10% of gross domestic product but only a small proportion of the workforce. That makes it an appealing target for any government seeking to raise revenue and fill a hole in the national budget. Last month, Treasurer Wayne Swan scrapped a key government pledge to return the budget to surplus in the current fiscal year through June after tax receipts, including from the mining levy, fell several billion dollars short of expectations.

Mining dominates in states like Western Australia where Labor has struggled to capture votes in the past. It's also a cornerstone industry in coal-rich Queensland state where Ms. Gillard is unpopular following her ouster of former Prime Minister and Queenslander Kevin Rudd.

BHP and Rio shares were little changed Wednesday by news of the polling date, because under Australian laws an election had to be called by the end of 2013 anyway.

IG chief market strategist Chris Weston said it's unlikely that any new taxes on mining will be promoted during the campaign because "a lot of Labor Party policy initiatives, such as the mining tax, haven't been to the detriment of the mining companies as many had feared."

Write to Rhiannon Hoyle at rhiannon.hoyle@wsj.com

Stocks mentioned in the article : BHP Billiton Limited, Rio Tinto plc
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