Colin Barnett, Western Australia Premier, Says Mining Tax 'Damaged' Country's Reputation

* New mining tax, carbon levy set to start in July

* Australia trying to keep up with Chinese demand -Barnett

* State premier open to foreign workers, wages must be good

By John O'Callaghan

SINGAPORE, March 15 (Reuters) - Colin Barnett, the premier of resource-rich Western Australia, said on Thursday a mining tax set to take effect in July had damaged his country's reputation and a new levy on carbon pollution would do little to promote cleaner sources of power.

He also said he saw no let-up in China's enormous hunger for energy, minerals and other materials for at least a decade, amid fears of a slowdown in the world's second-largest economy.

The profits-based mining levy of 30 percent is viewed as a "tax on China" -- a huge importer of Australian iron ore and coal -- and a better course of action would have been to add a mining surcharge to the taxes companies pay, he said.

"It's probably the worst-designed tax I have ever come across," Barnett, in Singapore to open a Western Australia trade and investment promotion office that will focus on Southeast Asia, told journalists.

"There is no doubt the proposed Minerals Resource Rent Tax has damaged Australia's reputation as a mining economy and investment source in Asia."

Australia's lower house of parliament narrowly passed the mining tax measure in November and it is now being debated in the Senate, which is expected to endorse it.

Western Australia's economy is driven by mining, petroleum products and agriculture, heavily exposing companies operating in the state to the tax on production of iron ore and coal -- the country's two biggest exports.

The same goes for a new carbon pricing scheme designed to help Australia be more energy-efficient and support efforts against climate change, which Barnett called a "poor policy."

"If you have multimillion-, multibillion-dollar projects and you have a change in your cost of production, you're not going to get people rebuilding their plant because of this. They will simply pay the tax," he said.

"I don't think it will cause a significant shift towards cleaner sources of power generation, nor will it cause a significant shift in people's consumption of electricity."

The scheme, also due to start in July, is a divisive issue in Australia -- one of the top per-capita carbon polluters -- as mining, manufacturing and energy companies complain it will harm earnings and cost jobs.

As part of efforts to win support for the measure, the government will offer A$8.6 billion ($9 billion) worth of free carbon permits to polluting industries in the first three years.

The scheme will impose an initial price of A$23 per tonne of carbon pollution before a switch to a market-based emissions trading programme in 2015. For the top rate of assistance, the effective price is cut to A$1.30 per tonne in the first year.


Barnett's state, making up the whole western third of Australia, accounts for nearly 40 percent of the vast country's exports and more than 15 percent of its gross domestic product.

China is by far the largest consumer of Western Australia's output, taking 42 percent, followed by Japan, South Korea, India and Thailand, national government data show.

"When China eventually starts to plateau in its growth rate that will have an impact but that's still, in my view, a long time away -- at least a decade or more," Barnett said.

"The problem now is for Australia and particularly mining, iron ore production, actually to keep up with the demand."

China is likely to keep its iron ore imports from Australia and Brazil "roughly balanced" to ensure security of supply, he said, with his country having the advantage of proximity.

Natural resources helped Australia weather the worst of the 2008 global financial crisis but the benefits are not flowing to everyone as manufacturers and retailers contend with a strong Australian dollar and tepid consumer sentiment.

With mining expansion facing the challenge of high labour costs and shortages, Barnett said he supports the hiring of foreign workers on a project-by-project basis but they must get Australian wages and good conditions.

"We can't get into low-cost labour," he said.

Major players in Western Australia's mining sector include BHP Billiton , Rio Tinto and China's CITIC Group. In energy, they are Chevron , ExxonMobil and Royal Dutch Shell -- all partners in the huge Gorgon natural gas project.