Revealed: mining levy deal that might have saved Kevin Rudd

ANDREW Forrest has revealed that he had finalised an in-principle agreement with Kevin Rudd on a revised new mining tax in June 2010.

andrew forrest

FORTESCUE Metals Group chairman Andrew Forrest has revealed that he had finalised an in-principle agreement with Kevin Rudd on a revised new mining tax that might have saved the then prime minister in June 2010.

In an interview with The Australian, Mr Forrest said Mr Rudd's intention was to unveil the new mining tax agreement as early as Friday, June 25 - a move that might have broken the momentum to depose him.

Mr Forrest said the agreement would have transformed the politics of the tax because it provided a sweeping new infrastructure blueprint that Fortescue calculated was worth $200 billion in infrastructure investment over five years.

Mr Rudd was deposed by Julia Gillard on Thursday, June 24.

"The Prime Minister's office was desperate to get the deal finalised and announced that week," Mr Forrest said. "We sensed something was happening, but we had no idea Rudd was about to be removed as prime minister.

"By Monday night, we felt we had an agreement. On Tuesday, Rudd told me he had the cabinet with him. I wasn't trying to hide what was happening, and that week I told people the resource super-profits tax, as we know it, is dead."

Mr Forrest revealed the heart of his negotiations with Mr Rudd was a proposed new infrastructure concept, with mining companies given an incentive to reduce RSPT obligations by generous tax deductibility provisions for infrastructure spending. It has long been known that Mr Rudd's plan was to secure a deal with Fortescue, the top second-tier miner, and break the unity of industry rejection of the RSPT.

Mr Forrest had intended to secure the support of his board for the new deal at a board meeting that started about 6pm Perth time on Wednesday, June 23, but the news quickly came through of the leadership crisis in Canberra.

"The word was 'Rudd's being rolled'," Mr Forrest said. "We were thunderstruck.

"We believed our proposal was an incredibly good deal for the country.

"We didn't realise then that BHP and Rio had gone behind our backs to do another deal."

Papers from the Fortescue board estimate the proposal would have transformed the national infrastructure. For FMG the 40 per cent RSPT would become an effective 20 per cent with new capital investment written off in a model that saw infrastructure investment reduce tax liability.

Mr Forrest said the infrastructure concept would have constituted "a huge legacy for a Labor government". It is known, however, that at the time of Mr Rudd's removal the in-principle deal did not yet cover the full extent of infrastructure envisaged by Mr Forrest.

On the first day of her leadership, Ms Gillard won a truce leading to a new deal that favoured the big three - BHP Billiton, Rio Tinto and Xstrata - and marginalised Fortescue.

Mr Forrest said he was misled by Wayne Swan before RSPT was unveiled on May 2. When FMG modelled the RSPT, Mr Forrest said "it showed we would have a negative cash flow after interest payments. Our company would not exist under the RSPT. Yet when Rudd was rolled he had the principles for a new and different tax sorted out."

The negotiations began at the Lodge on the night of June 20 and involved Mr Rudd, his economic adviser Andrew Charlton, Mr Forrest and his chief financial officer, Stephen Pearce.

"Rudd just refused to back down on the 40 per cent tax rate," he said. "He insisted this was non-negotiable even though I told him, 'This will wipe out good companies'. I think Rudd felt it was untenable in political terms for him to back down."

Mr Rudd's office declined to comment.