A taxing question

THE federal Labor Party is hoping that its strategy of change the leader, change the game, will appeal to the voting public and new Prime Minister Julia Gillard is certainly going at it with gusto.

Wonder Woman is not in it as Ms Gillard flies from resolving the mining-tax dispute to stemming the flow of illegal people smugglers' boats and addressing climate change. That's the story the media is buying, anyway, as she revealed with a flourish that she had personally overseen a successful negotiation of the suppurating mining-tax proposal revealed to the public at a lock-up briefing in Canberra on Sunday, May 2. Ms Gillard was not apparent during the events of that day, but in the first two months of the year, she, then Prime Minister Kevin Rudd, Treasurer Wayne Swan and Finance Minister Lindsay Tanner, compromising the Strategic Priorities and Budget Committee, worked over Ken Henry's 1000-plus-page tax review and fashioned the government's response. Mr Rudd, Mr Swan with Financial Services Minister Chris Bowen and Mining Minister Martin Ferguson were up-front and central at the delivery of the Henry Review, while the Treasury Secretary himself looked on uncomfortably from the sidelines. Those present will recall that Mr Rudd made a declamatory statement about the beauty of the Henry Review, and the superiority and fairness of the big new 40 per cent tax the mining industry was about to be hit with. Mr Swan supported that notion with gusto and then, with ill-grace, discredited about a third of the proposals put forward by Mr Henry and his tax review committee. This group had included such luminaries as Greg Smith (Australian Catholic University), Jeff Harmer (Secretary of the Department of Families, Housing, Community Services and Indigenous Affairs), Heather Ridout (Australian Industry Group) and Professor John Piggott (UNSW). Ms Ridout has been an outstanding cheerleader for the Rudd government since it took office, leaving the business community looking absolutely spineless. Dr Henry had every reason to look miserable for not only did Mr Swan boast to his media audience the secretary's report contained proposals Labor would not adopt in a hundred years, the government accepted (by most counts) just 2.5 of its 138 recommendations. My esteemed colleague Malcolm Farr stated then the Henry Review was worth every dollar, though the report cost about $20 million, or about $8 million per accepted proposal. With the dumping of the Resources Super Profits Tax (RSPT), that figure is now closer to $13 million per accepted proposal. In keeping with the best Labor tradition, Ms Gillard has announced a name change of the RSPT to Mineral Resource Rent Tax (MRRT) and a new set of conditions for this tax, which, exactly two months ago, was the centrepiece of the government's Budget. Unfortunately, there are nagging doubts about the numbers Ms Gillard, Mr Swan and Treasury have presented to justify the new tax's effects on the nation's economic outlook. The numbers don't seem to stack up. Under the Gillard solution, the 40 per cent tax rate, which Mr Swan and Mr Rudd both said was set in stone, has been reduced to 30 per cent (more or less in line with the company tax rate). In addition, the miners have been granted an extraction allowance of 25 per cent which applies from the time the ore is extracted until it reaches the mine gate, and effectively reduces the overall tax rate to just 22.5 per cent - undercutting the 30 per cent figure that the media grabbed on Friday morning. The number of resources to be taxed has been reduced from most mined minerals to just two, iron and coal, and the number of companies affected has been reduced from 2500 to just 320. Despite all that trimming, the $12 billion expected from the RSPT has been reduced by only $1.5 billion. There may well be enormous benefits for the big mining companies in the manner in which they will be permitted to value their holdings at current market-value or book-value and attribute offsets, but Treasury must produce its figures to show the public how this works, or it will appear to be yet another attempt by Labor and its willing accomplice, Dr Henry, to fool the public with fiscal sleight of hand. Dr Henry and his department have already been caught out twice trying to dupe the public with dodgy data presentations. In the first incident, Treasury presented modelling to support the government's emissions trading scheme, but the model relied on suppositions and assumptions that were sheer fantasy. The second, more damning fudge was its manipulation of OECD charts on the effects of fiscal stimulation that left out the figures of a number of nations, which, if included, would have disproved Dr Henry's theory. Before permitting Wonder Woman to zoom off to resolve the next crisis, we need to see Treasury's books on its mining solution to verify the claims being made. The ready acceptance of the big three miners, BHP, Xstrata and Rio, of the new package is enough to make the most forgiving punter suspicious and such suspicion will hurt Labor. Though the plotters who unseated Mr Rudd acted with enormous efficiency, there remains within many deeply committed Labor voters the view Mr Rudd, a first-term PM, should have been permitted to lead the party to the next election and not be struck down by his own for factional ends. Phillip Adams, a multi-millionaire former advertising chief and supporter of the fashionable Paddington Left, wrote yesterday that he had resigned from the ALP after 50 years over Mr Rudd's assassination. In what was undoubtedly a rare moment, Adams may have been in tune with other rank-and-file ALP members. Those running with the polling may not have counted on the dissatisfaction their dumping of Mr Rudd has caused, anymore than they factored in the anger at the increase in the tobacco excise. There is a risk to running a presidential campaign such the Kevin 07 that was used to tip Mr Rudd into the Lodge, and while Ms Gillard is still the woman of the minute, her role as deputy prime minister and acting prime minister on 27 occasions for 185 days, or 21 per cent, of the Rudd prime ministership cannot be ignored. She is part of Labor's baggage and will remain as much a part of Labor's baggage as her wasteful $16.2 billion BER scheme no matter how much lipstick is applied to the ALP in an attempt to give it a new face.