The big miners may have won a long running battle with Prime Minister Julia Gillard after an influential tax panel recommended the government pick up future state royalty payments under its tax reform package.

The recommendation, if adopted, could save the nation's biggest coal and iron ore miners hundreds of millions of dollars in future royalty payments to resource heavy states, such as Western Australia and Queensland, and silence an industry campaign that has accused Gillard's government of reneging on an earlier agreement to cover the royalties.

In October, BHP Billiton and Rio Tinto were reportedly close to walking away from an earlier agreement due to a dispute over who would pay if a state government increased royalties.

The package of over 90 non binding recommendations are broadly fiscal neutral over the forward estimates, the panel led by former BHP chairman Don Argus and Resources Minister Martin Ferguson said, and are not expected to impact the government's plan to return the budget to surplus in 2012/13.

BHP Billiton and Rio Tinto mine iron ore and coal in three Australian states while Xstrata mines coal in two. The three companies are likely to shoulder about 85% of the bill from the new tax, aimed at raising AUD 7 billion in the first two years and used to fund retirements plans and other social programs.

A further 320 mining companies, showing annual profits of AUD 50 million ore more, will pay the rest.

Panel of experts established to make recommendations to the government said that "All current and future state and territory royalties on coal and iron ore should, therefore, be credited and it is imperative that ... the states and territories do not have an incentive to increase royalties.”

BHP and Rio saw their royalties paid to Western Australia on iron ore increased this year for the first time in four decades.

Western Australia and Queensland, home to many of the world's biggest collieries, have each reserved the right to increase future royalties.

The government is expected to announce its final tax legislation around May 2011, which may take Tuesday's recommendations into consideration.

Treasurer Wayne Swan refused to endorse or reject any of the 94 recommendations included in the report.

Mr Swan told reporters that ‘‘But I can say this - there is a lot of commonsense in this report, a lot of commonsense in these recommendations.”

(Sourced from Reuters and AAP)