Based on a bit of feedback we’ve received a lot of Americans–particularly those whose major introduction has come via Australian Edge, an advisory that debuted only in September 2011–have formed generally negative impressions about the domestic political situation Down Under.

Many compare Australia to Canada at the time of the October 2006 Halloween Massacre, when Prime Minister Stephen Harper, through Finance Minister Jim Flaherty, destroyed about USD20 billion of investor wealth overnight with a campaign-promise-breaking decision to begin taxing income trusts in January 2011. What’s happened at the hands of Australian Prime Minister Julia Gillard this year is worse, they write.

At issue are two new taxes introduced by Ms. Gillard and passed by parliamentary coalitions in the second half of 2011, one that puts a price on carbon emissions and will lead to development of a cap-and-trade scheme similar to Europe’s, another aimed specifically at the “super profits” earned by coal and iron ore miners/producers.

These new impositions are accompanied by government give-backs designed to make the transition to a low-carbon future smoother for business; there are rebates and other devices to help consumers cope with higher energy prices as well. And the latter tax was hammered in close negotiation with major Australia-focused mining companies, including BHP Billiton Ltd (ASX: BHP, NYSE: BHP), Rio Tinto Ltd (ASX: RIO, NYSE: RIO) and Xstrata Plc (London: XTA, OTC: XSRAF, ADR: XSRAY).

This has rankled many smaller miners, perhaps rightfully so, at least if you accept at face value their assertion that the tax will fall disproportionately on their narrower shoulders. The net impact on any single company is yet to be determined, but that hasn’t stopped a vocal group, stoked by Fortescue Metals Group Ltd (ASX: FMG, OTC: FSUMF, ADR: FSUMY) Chairman and Founder Andrew John Henry “Twiggy” Forrest, who may be just playing along with his smaller rivals out of a sense of duty to his iconoclastic reputation but is certainly keeping the issue alive in the media.

That’s despite the fact that most miners, big and small, favor the certainty of moving forward under this new regime over the promise of continuing uncertainty that would accompany successful repeal, as opposition politicians, encouraged by “Twiggy,” among others, continue to run on.

Though Australia’s wisdom in jumping out so far ahead of most of the rest of the world is questionable–only Europe with its cap-and-trade system, which Australia’s will emulate beginning in 2015, when it transitions from the AUD23 per ton levy to a floating-rate mechanism–you could argue that companies that call the Lucky Country home will have a head start once the world finally recognizes the need to internalize some of the major costs of doing business the fossil fuel way.

Here’s the “alarm” sounded by one major global house, Deutsche Bank AG: “The carbon price is expected to have a moderate negative (fiscal year 2013) earnings impact on some emissions-intensive companies.”

As for the mining tax, formally the Minerals Resources Rent Tax (MRRT), “We’re not expecting to pay significant amounts of MRRT ourselves, and we find it hard to believe that [other] major miners are in any different position,” said the man who does the taxes for Twiggy’s company, Marcus Hughes, to a parliamentary committee in Canberra in November.

Reaction on the political front has been loud and emotional, and Ms. Gillard’s future in the game remains in doubt. Opposition leader Tony Abbott has staked a lot of his federal ambition on a campaign to re-open these issues, but Australians generally support the new taxes.

Ultimately the costs for this tax are likely to be borne by countries that import large quantities of Australian coal and iron ore, specifically China and to a lesser degree India. These are the consumers to whom Australian producers will pass costs. They don’t like it, but it’s simply another variable in a complex global pricing equation.

It’s a fair guess that Australia will fall a couple places in The Heritage Foundation’s 2012 ranking of countries according to “economic freedom.” The think tank released its findings for this year when it thought carbon-tax legislation was on hold because of “political opposition” and well before the mining “super tax” passed Australia’s lower house of parliament. These factors weren’t ignored in the calculation of the country’s overall “fiscal freedom” score, which was 61.3 out of a possible 100. The global average is 76.3; Australia’s poor showing is exacerbated by relatively high income and corporate tax rates.

But the factors that drove the country’s No. 3 showing in the 2011 appraisal by one of Washington, DC’s leading factories of conservative scholarship–including longstanding openness to global trade and investment, generally even application of transparent and efficient regulations, an independent judiciary that protects property rights, and levels of corruption–are largely intact.

The primary threats from abroad to Australia’s continuing prosperity in 2012 are Europe, China and the US–the three variables around which so much revolves. Headline-writers continue to make easy work of turning Europe’s saga into the virtual hand on the yo-yo, pulling the market higher when Merkel and Sarkozy have nice talks, dropping it when random German bankers drop hints that no support from the Deutsche Bundesbank is forthcoming.

Australia’s Big Four banks are under increased scrutiny because of their reliance on the wholesale funding market. Should the crisis in the eurozone devolve to cause a 2008-style credit crunch their borrowing costs would rise. Several Australian bank executives have said offshore funding markets have been extremely tight since mid-November, as debt investors sweat out Europe’s banking sector.

The Reserve Bank of Australia, in minutes from its Dec. 6, 2011, board meeting, its most recent, noted that although pressures exist, a funding crisis for the local banks isn’t yet on the horizon: “While Australian banks had found long-term debt markets dislocated, there were no signs of strain in local money markets through November and banks have also been able to access short-term offshore markets with relative ease.”

The central bank noted local banks continued to be beneficiaries of the shift of US investors away from European bank debt, while deposit growth has also been running well in excess of lending growth.

The RBA cut its target overnight interest rate by 25 basis points to 4.25 percent at that meeting, which leaves it plenty of room to use traditional monetary policy tools if necessary to offset a precipitous decline in aggregate demand.

It should be noted, too, that Australia–despite its recently won reputation on these shores for its “socialism,” etc., boasts one of the lowest net debt-to-gross domestic product ratios among economies developed or developing in the world. New fiscal stimulus measures undertaken by previous Prime Minister Kevin Rudd can therefore be repeated without dragging Australia into European-style mire.

Monetary and fiscal flexibility should protect Australia from a worse-than-forecast slowdown in China. At present we, based on input from our colleague Yiannis Mostrous, anticipate growth in the Middle Kingdom to approximate 8 percent in 2012. Our base-case scenario is that Chinese officials will do what it takes to guarantee a soft landing, using the several critical tools at their disposal, including further easing of bank reserve requirements.

Despite the impressions created by recent developments, Australia remains one of the most investor-friendly jurisdictions on the planet.

The Roundup

AE Portfolio Conservative Holding APA Group’s (ASX: APA, OTC: APAJF) merger with Hastings Diversified Utilities Fund (ASX: HDF, OTC: none) appears to be moving ahead, albeit not directly and despite the fact that the bid remains hostile, regulatory review will be difficult and the target just paid a fee that violates conditions of the offer.

Hastings Diversified agreed to make a cash payment of AUD30.7 million toward a total performance fee of AUD54.1 million that’s due because of developments at the fund during the six months ended Dec. 31, 2011. APA has argued that too much of Hastings Diversified’s cash flow is being diverted to its manager, Hastings Funds Management Ltd, a unit of Westpac Banking Corp Ltd (ASX: WBC, NYSE: WBK) a case made easier by the timing and size of this recent payment. That it’s in cash rather than shares might also suggest the outside manager’s interest isn’t necessarily aligned with that of the broader shareholder base.

APA is likely to waive the two conditions the cash payment violates, though it has already spun this news into the factoid that Hastings Diversified has paid AUD110 million in such fees since 2004. The recent AUD30.7 million is based on Hastings Diversified’s share-price performance versus a benchmark index up to Dec. 14, 2011, the day APA made its offer for the 79.3 percent of the fund it doesn’t own. APA’s offer is AUD0.50 in cash and 0.326 of its shares for every one share of Hastings Diversified.

The deferred portion of the performance fee will be based on the share price increase after Dec. 14 up to an eventual takeover by APA, if such is allowed to happen.

Hastings Diversified defended the move by pointing out the recent AUD460 million deal with Santos Ltd (ASX: STO, NYSE: STO) to move natural gas from Moomba to Queensland on the South West Queensland Pipeline, suggesting the share-price increase was based on more than APA’s offer. Management also noted that it had the liquidity to make a cash payment, preferable, all things considered, because paying with shares might have pushed Westpac’s overall stake in Hastings Diversified past the 10 percent ownership that would allow it to block APA’s 90 percent takeover condition.

Analysts, for their part, mocked the move, with one noting that Hastings Diversified’s collection of defensive assets should outperform during the type of unstable market conditions that have prevailed over the second half of 2011.

Meanwhile, the Australian Securities and Investments Commission (ASIC) has granted Hastings Diversified’s request for a five-day extension of its deadline to submit its “target statement” in response to APA’s “bidder’s statement” and “supplementary bidder’s statement,” the latter of which was filed Jan. 3, 2012, and which concerns primarily the “implied value” of APA’s bid and adjustments to that value based on market moves and Hastings Diversified’s decision to pay a distribution.

APA also noted again that Hastings Diversified stapled share owners won’t be entitled to receive any portion of APA’s interim dividend for fiscal 2012, which has already been declared. APA traded ex-dividend as of Dec. 22, 2011, and will pay shareholders of record Dec. 30, 2011, a AUD0.17 dividend on Mar. 15, 2012. APA’s share price has come down since the Dec. 14 offer, in large part because it’s trading ex-dividend.

APA has also reduced the cash component of its offer to reflect the distribution by Hastings Diversified. The implied value of the offer as of Jan. 3 stood at AUD1.94 per Hastings Diversified stapled share. Hastings Diversified closed at AUD1.98 on Friday.

APA has downplayed questions about its ability to refinance existing Hastings debt, a position supported the ease with which it was able to secure its own funding in recent months. And the cash portion of the deal is already funded via proceeds from a recent asset sale.

Assuming the deal receives the ACCC’s approval, it will immediately accretive to APA’s earnings. The dominant player Down Under would own/operate more than 15,000 kilometers (approximately 9,300 miles) of pipelines. The deal would connect systems already wholly owned by APA and further its goal to connect every major gas field in the country.

Should it be completed APA’s already strong position vis a vis recent carbon legislation would only be enhanced. Management has previously reiterated cash flow and distribution guidance for fiscal year 2012. Buy APA Group up to USD5.

Following are “on or about” dates for each Holding’s next earnings report and the next date after which it will trade “ex-dividend.”

Conservative Holdings

• AGL Energy Ltd (ASX: AGK, OTC: AGLNF, ADR: AGLNY)–Feb. 23, 2012, Mar. 5, 2012
• APA Group (ASX: APA, OTC: APAJF)–Feb. 22, 2012, Jun. 25, 2012
• Australia & New Zealand Banking Group Ltd (ASX: ANZ, OTC: ANEWF, ADR: ANZBY)–May 2, 2012, May 10, 2012
• Cardno Ltd (ASX: CDD, OTC: COLDF)–Feb. 15, 2012, Mar. 7, 2012
• CSL Ltd (ASX: CSL, OTC: CMXHF, ADR: CMXHY)–Feb. 16, 2012, Feb. 15, 2012
• Envestra Ltd (ASX: ENV, OTC: EVSRF)–Feb. 23, 2012, Feb. 10, 2012
• M2 Telecommunications Group Ltd (ASX: MTU, OTC: MTCZF)–Feb. 25, 2012, Mar. 16, 2012.
• Telstra Corp Ltd (ASX: TLS, OTC: TTRAF, ADR: TLSYY)–Feb. 9, 2012, Feb. 20, 2012

Aggressive Holdings

• BHP Billiton Ltd (ASX: BHP, NYSE: BHP)–Feb. 8, 2012, Feb. 17, 2012
• GrainCorp Ltd (ASX: GNC, OTC: GRCLF)–May 22, 2012, Jun. 15, 2012
• Mineral Resources Ltd (ASX: MIN, OTC: MALRF)–Feb. 17, 2012, Mar. 12, 2012
• Newcrest Mining Ltd (ASX: NCM, OTC: NCMGF, ADR: NCMGY)–Feb. 10, 2012, Mar. 19, 2012
• New Hope Corp Ltd (ASX: NHC, OTC: NHPEF)–Mar. 27, 2012, Mar. 20, 2012
• Origin Energy Ltd (ASX: ORG, OTC: OGFGF, ADR: OGFGY)–Feb. 22, 2012, Feb. 24, 2012