Canberra — The Associated Press Published on Friday, Jul. 02, 2010 7:01AM EDT Last updated on Friday, Jul. 02, 2010 7:49AM EDT

Australia's government on Friday retreated from a planned 40 per cent tax on booming profits in the mining industry, defusing a damaging row with big business and clearing the way for national elections to be called at any time.

Mining companies had campaigned mightily against the proposed tax, and it was a key factor in the sudden ouster of Kevin Rudd as prime minister after he refused to negotiate. Friday's announcement from new Prime Minister Julia Gillard effectively removes the issue from the political agenda.

Opinion polls showed an immediate boost for the ruling Labour Party when Ms. Gillard took office, and she may choose to capitalize on that popularity by calling elections as soon as this weekend that could be held in August. Elections must be called by year's end.

“The breakthrough agreement keeps faith with our central goal from day one: to deliver a better return for the Australian people for the resources they own and which can only be dug up once,” Ms. Gillard said.

The new deal replaces a so-called “super profits tax” of 40 per cent with a profits-based minerals resource rent tax of 30 per cent. The new plan shaves $1.5-billion Australian ($1.27-billion U.S.) in extra tax revenue off the original plan, to about $10.5-billion (Australian) from about $12-billion.

The new tax will apply only to the 320 biggest miners, down from the 2,500 that fell under the original tax proposal.

And it will apply only to iron ore and coal – Australia's biggest exports, while exempting metals that generally reap lower profits, such as nickel, gold, copper and uranium.

The regime, which will replace a state-by-state royalty system, is due to start in 2012 if Parliament passes enabling legislation.

To offset the loss in revenue, the government will reduce the broader company tax rate to 29 per cent from 30 per cent, instead of 28 per cent as originally planned – and keep its goal of bringing the budget back into surplus by 2013.

As profits surged on the back of demand for Australian resources, mining companies have recognized that they may have to pay higher taxes. But they strongly opposed key elements of Mr. Rudd's plan, including the headline rate.

In a joint statement, top miners BHP Billiton, Rio Tinto and Xstrata welcomed the new scheme.

“The companies agree that the proposal presented by the Government represents very significant progress towards a minerals taxation regime that satisfies the industry's core principles,” the statement said.

The deal so far is broad, and Ms. Gillard said former BHP Billiton chairman Don Argus and Resources Minister Martin Ferguson had been appointed to a committee to hammer out the details.

Mr. Rudd proposed the big tax rise to capitalize on the revenue mining companies have raked in from burgeoning Chinese and Indian demand for Australia's minerals and energy resources.

Mining companies warned it would cost jobs and investment even as the industry's boom had helped keep Australia out of recession during the global economic crisis.

Source: http://www.theglobeandmail.com/report-on-business/industry-news/energy-and-resources/australia-relents-on-mining-tax/article1626225/