The Australian government has dropped intentions for imposing 40 per cent tax on thriving mining profits on Friday, preventing a damaging row with key business players and paving the way for smooth national elections.

Mining firms had crusaded mightily against the proposed 40 per cent tax, and it was one of the key reasons why former PM Kevin Rudd was ousted following his refusal to negotiate. Prime Minister Julia Gillard's announcement this Friday effectively eliminates the controversy from the political table.

Opinion surveys showed an immediate increase for the reigning Labor Party when Gillard became PM, and she might opt to take advantage of that popularity by declaring elections in the next few days. Elections must be held before the year's end.

"The breakthrough agreement keeps faith with our central goal from day one: to deliver a better return for the Australian people for the resources they own and which can only be dug up once," Ms. Gillard announced.

The supposedly "super profits tax" amounting to 40 per cent is being replaced by a resource rent tax, also profits-based, with 30 per cent rates. This mining tax will affect around 320 mining firms, a miniscule number compared to the 2,500 covered by the earlier super profits tax.

The new 30 per cent tax will apply to the coal and iron ore mining industries, Australia's largest exports, and will start on 2012.

The new resources rent tax will lessen revenues by approximately AU$1.5 billion ($1.27 billion), over a four year period, compared to the last proposal of AU$9 billion.