Australia’s proposed mining tax has been thrown into uncertainty after new Labor Party prime minister Julia Gillard announced a general election.

Depending on the outcome of the election on August 21, the ruling Labor Party’s controversial tax may be changed or dropped altogether.


Under the Liberals’ proposal, the tax would be scrapped entirely, but the Greens, who early polls suggest might control the balance of power in Australia’s senate, want a much tougher tax to fund national infrastructure projects.

The mining tax has already undergone dramatic changes. Earlier this year, former prime minister Kevin Rudd announced a 40% tax on mining profits but this was seen as so detrimental to Labour’s election chances that he was deposed by his own party.

His successor, Ms Gillard, revamped the proposed tax during a series of negotiations with mining giants BHP Billington, Rio Tinto and australia Xstrata. The modified proposals include a reduced 30% tax applicable only to iron ore, coal, gas and oil projects where profits exceed 12% to 13%.

Now the mining industry must await the outcome of the election to see whether these new proposals go ahead. Many fear the impact even a reduced tax might have on FDI if investment is lost to countries such as Canada, where taxation is significantly lower .

“If it is what it appears to be, a significant tax increase, that’s another competitive advantage for Canada. We’re reducing our corporate taxes,” said Canadian finance minister Jim Flaherty.

After the Australian tax proposals were first announced, Xstrata shelved spending on A$6.6bn ($5.9bn) of its projects in the country, while Rio Tinto announced the restart of expansion plans for its Canadian iron ore operations; after Ms Gillard’s concessions, Xstrata resumed investment in Australia.