Australia’s Rudd, Facing Tax Revolt, Backed as Leader

June 13 (Bloomberg) -- Australian Prime Minister Kevin Rudd, facing an electoral backlash over plans to introduce a 40 percent tax on mining profits, will remain as the leader going into the next election, Federal Finance Minister Lindsay Tanner said.

“Rudd will lead the government to the election,” Tanner said on ABC Television today. “I believe the government will win. Suddenly, it’s become a much tighter contest and we’re under a bit of pressure. It will be a tough fight.”

BHP Billiton Ltd., the world’s largest mining company, and Xstrata Plc have called on the Australian government to roll back or ditch plans for the tax to avoid a flight of investment from the country, while Sinosteel Corp. today said it was “concerned.” The so-called “super tax” is proving a hard sell in the main mining states of Western Australia, where a poll showed support for Rudd’s Labor Party has fallen to a record low, and Queensland.

“The mining tax, it’s a severe negative for the government at the moment,” Galaxy Research pollster David Briggs said on Sky News today. He said Labor would probably lose four of its 15 seats in Queensland should an election be held now.

Australia, which voted Rudd’s center-left Labor Party into power in October 2007 after 12 years of conservative Liberal Party rule, must go to the polls within 10 months. Most political experts are predicting the election will be held later this year.

Gillard Speculation

Deputy Prime Minister Julia Gillard said speculation she may challenge Rudd’s leadership was “absolutely absurd.”

“I’ve read the newspapers and the thing that matters is not what’s in the pages of the daily newspapers but a focus on making a difference to working families,” Gillard told reporters in Brisbane yesterday.

Nationally, a survey conducted between June 3 and June 5 showed 53 percent of voters preferred the opposition, compared with 47 percent who backed Rudd’s party, the first time Labor has trailed in four years.

The proposed 40 percent levy would be imposed on resource companies’ returns that exceed the rate on long-term Australian government bonds, currently about 6 percent, and be offset by a credit for royalties paid to state governments, according to government documents.

China Concern

Sinosteel is investigating the impact the proposed tax will have on its cashflow, Guilio Casello, chief operating officer of Sinosteel Midwest Corp., told ABC Television today. China’s biggest iron ore trader bought Australian company Midwest Corp. for A$1.4 billion in 2008 and is developing a mine in Western Australia.

“Obviously there’s concern,” Casello said. “The Chinese are very large investors into the region. They invest in obviously not just our project but in a number of projects into the region. They’re still very committed to the region. They understand the potential.”

BHP and Xstrata has joined Rio Tinto Group and Peabody Energy Corp. in reviewing, suspending or slowing Australian projects because of the tax.

The government may raise the threshold at which the levy kicks in to more than 10 percent from 6 percent, the Herald Sun newspaper reported June 12. Resources Minister Martin Ferguson has said the government is open to “refinements” to the tax.

“Our tax reforms are about making sure mining companies pay a fairer price for our mineral wealth,” Treasurer Wayne Swan said in an e-mailed statement today.

Facing Protests

Rudd faced protests from mining executives in Perth last week as he met with business leaders to promote the tax.

Industry groups say the tax would force companies to shift operations overseas, jeopardizing investment in a business that represents about 10 percent of the A$1.2 trillion ($980 billion) economy. Rudd has countered that the companies involved are exaggerating their importance to Australia, the world’s biggest shipper of iron ore and coal.

Wild West

Labor’s support has fallen to a record low of 26 percent in Western Australia, compared with 52 percent for the Liberals and their coalition partner the Nationals, according to a West Australian newspaper poll released yesterday. On those figures, Labor would lose all four of the seats it holds in the state, generator of a third of the nation’s exports.

“The Western Australian market has been unsettled by the combined impacts of the instability in Europe, the uncertainty caused by the proposed resource super profits tax in Australia and declining commodity prices,” Keith Jones, managing partner of Deloitte in the state, said in an e-mailed statement today.

The value of Western Australian-listed companies in May decreased by A$20.7 billion, or 13 percent, to A$143.8 billion, Deloitte said.

Western Australia, about four times the size of France, accounts for 62 percent of the nation’s mineral production, 73 percent of natural gas and 64 percent of crude oil and condensate.

In Rudd’s favor, voters supported his actions during the global financial crisis when he implemented a stimulus program that helped the nation avoid recession. He was aided by demand for raw materials from India and China, the world’s largest buyer of iron ore, which fueled purchases of Australia’s natural resources.

“People need to get serious,” Transport Minister Anthony Albanese said on the Ten television network today, referring to calls for Rudd to be replaced. “The fact is our prime minister is the one leader of the advanced world who negotiated successfully through the global financial crisis.”