Australia's government on Friday dropped plans for 40 percent 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.
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 Labor Party when Gillard took office, and she may choose to capitalize on that popularity by calling elections as soon as this weekend. 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," Gillard said. "It is the result of intense consultation and negotiation with the resources industry."
The new deal replaces the so-called "super profits tax" of 40 percent with a profits-based minerals resource rent tax of 30 percent that will affect about 320 companies, down from the 2,500 that fell under the original tax proposal.
It will apply only to the iron ore and coal industries - Australia's biggest exports - and would begin in 2012.
The new resources tax will reduce revenues by an estimated Australian dollars 1.5 billion ($1.27 billion) over four years compared to the previous proposal of AU$9 billion. But Gillard said the changes would not effect the government's overall goal of bringing the budget back into surplus by 2013.
In a joint statement, top miners BHP Billiton, Rio Tinto and Xstrata welcomed the new scheme.
"BHP Billiton believes that 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," CEO Marius Kloppers said in the statement. "We are encouraged that the design is closer to our frequently stated principles of sound tax reform."
The deal so far is broad, and Gillard said former BHP Billiton chairman Don Argus and Resources Minister Martin Ferguson had been appointed to a committee to hammer out the details.
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.