Australia drops mining tax

Australia's government has dropped plans for 40 per cent tax on booming mining company profits, defusing a damaging row with big business and clearing the way for national elections to be called at any time.

European mining company Xstrata says it is resuming project activities at its underground coal mine and coal exploration in Queensland, in an initial response to the revised minerals tax regime announced by the Australian federal government today.

Along with Australia's biggest miners, BHP Billiton and Rio Tinto, Xstrata welcomed the government's decision to replace its 40 per cent resource super profits tax with a 30 per cent minerals resource rent tax.

But smaller miners, including Queensland collier Clive Palmer, say the deal comes at their expense.

In a joint statement coinciding with the government's announcement today, the big three miners said they were "encouraged" by the new regime, which represented significant progress towards a regime that satisfied the industry's core principles.

The miners say the changes meet a core principle that any new tax not be applied retrospectively, so existing projects where investment decisions already had been made were not adversely affected.

Under the revised proposal, the government will tax existing projects at a written down value.

Xstrata said its Queensland Ernest Henry project was an extension of the existing mine.

Association of Mining and Exploration Companies chief Simon Bennison said his group had been left out of the negotiations and small miners would be disadvantaged by the new arrangements.

Smaller miners with resource profits below $US50 million a year won't be liable for the new tax.

The group plans to continue campaigning against the 30 per cent tax, now limited to just 320 companies mining iron ore, coal, oil and gas.

Rio Tinto Australia managing director David Peever said recognition of market value of existing mines and a reduction in the headline tax rate represented significant progress.

"We all want a minerals taxation system that grows the mining industry in Australia.

"A strong mining sector keeps the Australian economy strong, spreading prosperity to all Australians, said Peever.

BHP Billiton chief executive officer Marius Kloppers said "tax reform that is prospective, competitive, differentiated and resource-based will ensure that the Australian mining sector continues to grow through investment in the industry which benefits all Australians.

"We are encouraged that the MRRT design is closer to our frequently stated principles of sound tax reform, in that the proposed tax will be prospective in its treatment of profits from our iron ore and coal businesses, and not apply to the other commodities in our portfolio," Kloppers said.

He described the new regime as representing "a material improvement from the original tax proposal".

Speaking from Germany on Sky News on Friday, Palmer, who chairs miner Mineralogy, said the deal announced today sold out smaller mining companies, which had not been involved in discussions about them.

- AAP