IT TOOK less than a week for Julia Gillard to achieve what Kevin Rudd could not manage in two months - broker a deal with the mining industry.
And despite the new minerals resource rent tax only applying to iron ore and coal, a cut to the headline tax rate and various other concessions, the federal government says the new plan will generate only $1.5 billion less in revenue.
But what have the Gillard government and the miners agreed to change to reach this compromise?
The headline tax rate has been cut from 40 to 30 per cent. But Ernst & Young tax partner Andrew van Dinter said the headline rate was in fact 22.5 per cent due to the operation of a new 25 per cent extraction allowance.
''The extraction allowance effectively takes the rate down to 22.5 per cent,'' Mr van Dinter said. ''The reason for that is the 25 per cent allowance just comes off your [MRRT] tax liability. There are no limitations on that; it's a straight-out reduction in your tax liability … it's like a free-flowing tax credit.''
The government says the extraction allowance is designed ''to further shield from tax the important know-how and capital that mining companies bring to mineral extraction'' and that the allowance ''recognises the contribution of the miner's expertise to profits at the mine gate''.
One of the greatest points of contention of the old RSPT was that it would kick in on profits above the 10-year government bond rate, currently around 5 per cent.
This was justified by an equally unpopular government guarantee, which ensured miners would receive 40 per cent of undeducted expenditure when their projects closed.
Under Ms Gillard's MRRT, the rate is now the 10-year bond rate plus 7 per cent, designed to better reflect the mining industry's cost of capital. The government guarantee has been ditched.
The government has confirmed the previously uncertain taxing point will be at the ''mine gate'', considerably lower compared with if resources were taxed after processing and other value-added activities.
Justin Cherrington, a tax partner at law firm Mallesons Stephen Jaques, said this would provide greater certainty for investors in Australia's resource industry.
''Importantly, the tax will be imposed on resource value at the mine gate, removing the potential for the tax to apply after value-add activities have been conducted,'' he said. Under the new tax, new capital expenditure incurred will be immediately deductible rather than depreciated over a number of years, enabling miners significant concessions in project cashflows.
Mr Cherrington said the immediate deductions would enable some miners to defer their tax liabilities on some projects until they turned profitable. ''I think that's a significant concession,'' he said.
In the government's own worked example, the first dollar of MRRT is paid in the fifth year of the mine's operation.
The MRRT, while not removing the retrospective application of the RSPT, now offers miners a choice between depreciating existing project values based on either book or market values.
''It's going to be very hard to determine a market value for what can often be illiquid assets with a limited market,'' Michael Bush, head of fixed income credit research at National Australia Bank, said.
''There's a limited amount of transactions to be able to provide benchmark valuations for many of these projects.''
State-based royalties will no longer immediately refundable. Instead they will be credited against profits, or carried forward. This is considered less concessionary.
