Australia’s plan to hit mining projects with a new tax might have upset resource companies, but it could prove popular with voters and boost Prime Minister Kevin Rudd’s standing ahead of an election this year.
Rudd will impose a new 40% tax on resource projects from July 2012, cut company tax from 30% to 28% by July 2014, and pour more money into worker pension funds, known as superannuation, under his plan, announced on Sunday.
With a healthy lead in opinion polls, and an election due by late 2010, analysts said Rudd’s plan was likely to be well-received by voters, particularly with potentially more good news to be announced in the May 11 national budget.
Nick Economou, political analyst at Melbourne’s Monash University, said the plan should be politically popular.
“After all, what could be more popular than a tax that makes the mining industry pay more tax on its massive profits, to pay for more money into your superannuation pension fund?”
Shares in mining giants Rio Tinto and BHP Billiton fell sharply on the announcement of the new tax, which the government expects to raise about Aus$12-billion ($11,1-billion) in its first two years.
Rudd’s plan will be put to Parliament after the looming election, likely in October, which polls suggest would see Rudd’s government returned with an increased majority.
Rule out unpopular reforms
The conservative opposition has expressed strong concerns about the plan recommended after a major tax review, but it has not yet said whether it will try to block the resource tax which is expected to resonate among voters. Even if it does, it may not have the numbers in the Senate to derail it.
Rudd and Treasurer Wayne Swan have been quick to rule out potentially unpopular reforms suggested in the two-year review of the tax system, including any move to cut tax benefits for housing investments and any move to increase taxes on cheap wine.
At the same time, Rudd targeted the crucial small business sector, which is the main driver of employment in Australia, by giving them the company tax cut, representing a 6% drop in taxation, a year earlier than big companies.
“The tax review had the potential to make life very difficult for the Rudd government, right at a time when they are clearing the decks for an election,” Economou said.
“What Rudd has done is pick the simple, easy and potentially popular options in the review, and ruled out the stinkers.”
John Warhurst, professor of politics at Australian National University, said the reforms should be popular in the short term, but could pose risks to Rudd if the opposition and the mining industry mounted a successful political campaign against it.
“Those things that go directly into people’s pockets are the things most voters concentrate on initially,” Warhurst said.
Adverse reaction to the mining tax would be strongest in the mining state of Western Australia, which has only a small number of seats and where the governing Labour Party’s support is already low, lessening any impact on Rudd’s wider appeal, he said.
Newspaper commentaries also said the tax plan was developed with an eye to the looming elections.
“The big losers from the government package are the resource companies; the screams from the mining sector are deafening. Think the government cares? Not on your life,” wrote the Age newspaper’s political editor Michelle Grattan.
Sydney Morning Herald political editor Peter Hartcher said the tax changes were designed more to protect the government against the opposition rather than to strengthen the economy.
“It’s about strengthening Rudd and Swan’s appeal to the ‘working families’ who will decide the election,” Hartcher wrote. – Reuters