Abbott Delays Budget Savings to Scrap Australia Mining Tax

September 3, 2014 Posted by admin

Australian Prime Minister Tony Abbott was forced to delay A$6.5 billion ($6 billion) of budget
savings in order to meet his election pledge to repeal the
nation’s mining tax.

The Liberal-National coalition won the support of key
independent lawmakers to scrap the 30 percent levy on iron-ore
and coal profits, only after agreeing to keep some spending
measures financed by the tax until after the next election.

“By giving away some of its spending cuts in a tight
budget climate it’s a bit of a Pyrrhic victory,” said John
Warhurst
, a political analyst at the Australian National
University
in Canberra.

The compromise highlights Abbott’s struggle to rein in a
budget deficit estimated to have swollen to A$49.9 billion in
the year ended June 30. Without a majority in the upper house,
his government is forced to negotiate with a disparate group of
lawmakers, ranging from the Australian Motoring Enthusiast Party
to mining magnate Clive Palmer’s bloc of three Senators.

Abbott has derided the mining levy, introduced by the
previous Labor government in July 2012, as one of the most
“stupid” taxes ever created. Treasurer Joe Hockey told
parliament yesterday it had raised about 1 percent of what Labor
had forecast.

‘Positive Step’

Rio Tinto Group, the world’s second-largest mining company,
welcomed the repeal of the tax, saying in a statement yesterday
it would be “a positive step for investment and good for jobs
in the mining sector.”

The government’s repeal bill was previously rejected in the
upper house, as the legislation also sought to scrap more than
A$16 billion of spending over the forward estimates, including
payments to parents of school children. Under the compromise
reached yesterday, the government will save A$10 billion over
the forward estimates, Hockey said in a statement.

The schoolkids bonus will stay until the end of 2016, as
will an income support bonus, while a low-income superannuation
contribution will stay until the end of June 2017.

The government will recover some of the reduction in
savings by delaying an increase in compulsory pension
contributions by employers. The rate will be paused at 9.5
percent of employees’ salaries until July 2021 and will increase
0.5 percent each year until it reaches 12 percent from July
2025.

The agreement was the “best possible deal in the national
interest,” Finance Minister Mathias Cormann told Sky News
today. “It helps us repair the budget.”

Election Pledges

The repeal of the mining tax comes after Abbott fulfilled a
pledge to scrap the nation’s price on carbon in July. The
government says it’s made significant progress on another core
election promise in “stopping the boats” operated by people
smugglers that bring asylum seekers to Australia.

“If want a stronger economy we’ve got to have stronger
budget,” Abbott told parliament in Canberra yesterday. “That’s
exactly what we will have as a result of the changes that have
passed through the Senate.”

The 30 percent mining tax was designed by former Prime
Minister Julia Gillard after she ousted her predecessor Kevin
Rudd
in a Labor party coup. Rudd had proposed a 40 percent tax
on all mining profits, including gold, nickel and uranium.

To contact the reporter on this story:
Jason Scott in Canberra at
jscott14@bloomberg.net

To contact the editors responsible for this story:
Rosalind Mathieson at
rmathieson3@bloomberg.net
Edward Johnson, Iain McDonald

Article source: http://www.bloomberg.com/news/2014-09-02/abbott-delays-budget-savings-measures-to-see-mining-tax-scrapped.html

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