Asialaw Profiles
The Guide to the legal markets of the Asia-Pacific

Australia legislation guide

By James Wheeldon
Atanaskovic Hartnell
Tel: +61 2 9777 7000 Fax: +61 2 9777 8777 Website: www.ah.com.au

There have been many significant legislative developments affecting Australia’s business environment over the last 12 months.

The August 2010 federal election led to a hung Parliament, with Prime Minister Julia Gillard’s centre-left Australian Labor Party retaining government with the support of independent legislators and the Greens party holding the balance of power in the Senate. The loss of a single government seat in the lower house could lead to a new election and, potentially, a new Liberal (centre-right) government.

Despite, or perhaps because of, its precarious position and its reliance on Greens’ support in the upper house of Parliament, the Gillard government has undertaken an ambitious and economically significant legislative programme.

The Gillard government has announced that this new tax, sometimes known as the ‘mining tax’, will apply to the mining of iron ore and coal in Australia from July 1 2012. The existing Petroleum Resource Rent Tax (PRRT) will be amended to cover all Australian onshore and offshore oil and gas projects. Preliminary exposure draft legislation for the MRRT has been released for comment, but final drafts of the new legislation are not yet available.

Iron ore, coal, oil and gas account for nearly two-thirds of the value of Australia’s exports and resource operating profits. Under the proposed MRRT and amended PRRT, profits in excess of specified returns on investment made by extractors of these resources will be subject to a ‘super-profits’ tax, and fixed royalties presently paid to the states will be rebated. A number of concessions for depreciation and new investment will be made available.

Proponents advocate the greater revenue potential of the new tax and its simplicity, while opponents argue that it is an uneconomic burden on some segments of the very industries that are driving growth in the Australian economy. They argue that the tax has distortionary effects, in that new and less advanced developments will be subject to higher effective taxation rates than existing projects controlled by major extractors.

Opposition leader Tony Abbott has pledged to scrap the tax if he becomes prime minister. The tax may also be subject to legal challenge on constitutional grounds.

The Gillard government announced in early 2011 that, from July 1 2012, the largest industrial emitters of carbon dioxide will be taxed on each tonne of carbon emitted, with the rate to increase annually. Draft legislation has not yet been released. Opponents argue that unilateral adoption of a carbon tax makes Australia uncompetitive, and some large industrials have suggested they will move production from Australia to other countries. As with the new mining taxes, Abbott has pledged to scrap the carbon tax if he takes office.

In 2009, the government announced its intention to roll out a national wholesale-only, superfast open access broadband network throughout Australia. The network will be constructed by NBN Co, an Australian government-owned corporation, in partnership with Telstra, the former monopoly telco. The government will invest around A$27 billion (US$28.29 billion) in NBN Co, with the balance of funds (around A$8 billion) coming from the private sector.

As part of the rollout of the NBN, the Telecommunications Act 1997 and the Competition and Consumer Act 2010 have been amended to require Telstra to undertake structural separation of its retail and wholesale arms. Telstra’s competitors have argued that current separation plans are not enough to ensure that wholesale customers can access Telstra’s network on even terms. The opposition’s likely position on the NBN, if it obtains power, is not entirely clear. It is unlikely however that a new government would, or even could, completely scrap existing plans.

Thanks to its exports of natural resources, Australia enjoys a highly favourable balance of trade with China and India and unemployment and inflation remain low. However, the strong dollar hurts tourism and manufacturing, and the impact of the proposed carbon tax is unclear. There is plainly a ‘two speed’ economy, with the mining centre of Western Australia (and to a lesser extent parts of Queensland) strongly outperforming the ‘old economy’ of the south-eastern states.

The strong dollar has muted M&A and capital markets activity. Leverage remains out of favour, and private equity has not resurfaced in any strength.

Nonetheless, there are many profitable and resilient Australian businesses, and not all of them are in resources. Some offshore bidders are still willing to make cash offers for Australian businesses at the right price, even if that requires that they bypass target boards and go directly to shareholders. This was evidenced by Peabody and ArcelorMittal’s hostile bid for Macarthur Coal and SABMiller’s hostile bid for Foster’s Group.

Australia’s fiscal position remains strong. Assuming China’s and India’s growth continues, there is a good prospect that Australia will increasingly be considered a comparatively safe haven.