The Australian Government has secured the repeal of the Minerals Resource Rent Tax (MRRT), thanks to a deal with the Palmer United Party (PUP) on a range of associated spending measures.
On September 2, the Senate passed the repeal legislation by 36 votes to 33.
Treasurer Joe Hockey said: "It has been a long and sorry saga for Australia and the mining industry, to have a mining tax that did so much reputational damage to Australia and at the end of the day, combined with the spending measures, left the Budget significantly worse off."
The Senate has twice rejected the Coalition's proposals, in March and July. In July, the PUP was instrumental in blocking repeal, after it refused to support plans for scrapping ten spending programs funded by the tax. It joined with the Labor and Green parties to insist on changes being made to the repeal package.
With three Senators, the PUP holds the balance of power in the Senate. The PUP has now published a letter from Finance Minister Mathias Cormann to its leader, Clive Palmer, which sets out the details of the compromise reached. It states that, in exchange for the PUP "facilitating its efficient passage through the Senate," the Government would support key amendments to the original repeal package.
As a result of this deal, the abolition of the Income Support Bonus will still go ahead, but the measure will remain in place until December 31, 2016. The Schoolkids Bonus will likewise be scrapped from December 31, 2016, but the Government will in the meantime apply a means test. Families on annual incomes of over AUD100,000 (USD92,956) will no longer qualify. The Low Income Super Contribution will be temporarily retained in its existing form, but will cease to apply from June 30, 2017.
According to Hockey, these negotiated measures will cost AUD6.5bn over the forward estimates period. However, he expects that the reduction in savings will be recovered in the medium term by a re-phasing of the superannuation guarantee increase. The compulsory superannuation rate will rise from 9.5 percent to 10 percent from July 1, 2021. From July 1, 2022, it will increase by 0.5 percent a year, until it reaches 12 percent in 2025.
Hockey explained that, because "increases in the superannuation guarantee are largely funded from reductions in take-home wages or business profits, re-phasing the superannuation guarantee puts more money in employees' pockets, while reducing businesses' overall wage bills, boosting near-term economic activity."
Cormann said: "This was not our preferred plan, but this was the best plan we could get. The savings, as we indicated, over the forward estimates, will be more than AUD10bn, which is about AUD6.5bn less than what we would have liked. But over the [next] decade, the total savings Ö will actually be in the order of about AUD50bn."
The mining tax entered into force in July 2012. It applied to the mining of iron ore and coal in Australia at an effective rate of 22.5 percent, after taking into account the extraction allowance. Miners with MRRT assessable profits of less than AUD75m per annum were not liable.
The Minerals Council of Australia (MCA) welcomed the Senate's decision as "a major step on the road to Australia reclaiming its status as a globally competitive producer and an attractive destination for mining investment."
It added: "The MRRT was based on the false premise that the mining industry was not paying its fair share of tax through the Millennium Mining Boom. It added a third, complex, and unnecessary layer of tax on coal and iron ore companies, on top of federal company tax (itself a profits-based tax) and State royalties."