Australia's Greens may block mine-tax deal

CANBERRA (Reuters) - The Australian government's hopes of defusing a damaging row over its planned mining tax hit a snag on Monday when the Greens party vowed to block any attempt to seriously water down the tax.

New Prime Minister Julia Gillard, who replaced Kevin Rudd last week, wants to strike a quick deal with miners to neutralise the tax issue at this year's general election and shore up support for the ruling Labor party.

But the Greens, whose support will be crucial to ensure the tax proposals pass through parliament, have warned their support for the tax is based on the current 40 percent tax rate, and any big concessions would be an unwelcome windfall for miners.

"A cave-in to the miners of any magnitude at this stage is not going to be looked at favourably by the Greens," Greens leader Bob Brown told Reuters in an interview.

"We're calling for the prime minister to hold her ground on that headline rate. We have given support for the package as it stands. But that support is for the package as it stands and will not apply to any new package with fundamental change."

Australia's conservative opposition opposes the mining tax and, in the current parliament, it can combine with the Greens in the Senate to defeat government legislation. Such a combination defeated the government's climate-change agenda this year.

The Greens are likely to hold an even stronger position in the Senate in the next parliament as well, even if Gillard returns to power. Recent opinion polls suggest she would easily lead Labor back to power, in contrast to the less popular Rudd.

Brown's comments mean Gillard may have to be careful with any deal with the mining industry: she needs to mollify miners to avoid a damaging election showdown on the issue, but she risks parliamentary failure if she makes too many concessions.

The next election is expected anytime between August and year-end, and must be held no later than early 2011.

GREENS WISH LIST

The Greens have proposed changes to the tax to allow some of the proceeds to be put into a sovereign wealth fund, an idea backed by several mainstream economists.

The Greens want the fund to finance national infrastructure projects, such as a fast train between Sydney and Melbourne.

Brown said the Greens would, however, support the scrapping of one element of the proposed tax: a rebate for mining losses. Even the industry says these rebates are worthless.

"We supported the headline rate and the pickup rate (tax-free threshold), which we are told may very well change," Brown said.

"My concern here is we are going to see a multi-billion-dollar win for the big miners, which means a loss to the exchequer and the future public good."

Meanwhile, Gillard announced a minor reshuffle of her ministry on Monday, with no change to the key Treasury, Finance and Resources portfolios. She has left Kevin Rudd, who she replaced as leader, on the backbench until after the election.

Former trade minister Simon Crean took on Gillard's old portfolios of employment, education and labour relations. Foreign Minister Stephen Smith takes on added responsibility for trade.

The minor changes ensure Treasurer Wayne Swan and Resources Minister Martin Ferguson retain their key roles in leading negotiations with mining companies over the new mining tax.

"As incoming prime minister I have taken additional steps to make sure that we are meaningfully negotiating with the mining industry, in a spirit of goodwill," Gillard said on Monday.

Miners say the tax, to be introduced in mid-2012, should apply only to new projects, not existing ones. They have threatened to scrap more than $20 billion in new investment if the tax goes ahead in its current form.

(Editing by Mark Bendeich and Jeremy Laurence)