Battle lines are drawn for poll

THE nation is now engulfed in a new election year struggle over a new tax -- the immediate upshot of the anti-climactic Henry review decisions.

Farewell ETS, but welcome to the 40 per cent Resource Super Profits Tax, the Rudd government's huge redistribution from the resources boom to finance improved superannuation, infrastructure and lower corporate tax.

Most of the vaunted Henry review has been put on ice. In its highly selective response, Labor has avoided losers, averted sweeping changes to the income tax system, shown an election-year caution but engaged in two critical long-run reform battles: a tax re-distribution from the resources sector to the rest of the economy, and lifting the superannuation contribution rate from 9 per cent to 12 per cent.

These are iconic imposts that reflect Labor's values but provoke Coalition retaliation. Given the commodities boom, some form of new profits tax is justified. Labor is right to build upon the Keating legacy and plan to boost super adequacy -- a position that rejected Ken Henry's own views.

Wayne Swan calls this profits tax "a world-class reform" to spread the benefits, combat the two-speed economy and deliver "a fair return from our natural resources wealth".

The irony is that the new tax, estimated to raise $9 billion by 2013-14, is one of the few of the 138 recommendations in the Henry review actually taken up by the Rudd government.

Tony Abbott likened the resources tax to the ETS. He brands it as "another great big new tax", saying he is "profoundly hostile" to the idea. The Opposition Leader says it is "a plan to kill the mining boom" and is not tax reform but a tax grab. The Coalition rejects Treasury's financial argument for the tax and Labor's political belief that it will carry public opinion.

The Treasurer announced his entire package pivoted upon passage of the super profits tax as its financing mechanism.

Mr Abbott reserved his position on whether the Coalition would vote against the tax.

Labor presents the redistributed resource profits as a means to boosting investment, savings and infrastructure. Company tax will be cut from 30 per cent to 28 per cent by 2014-15 with Swan leaving open the option of going further given Henry's 25 per cent target.

A new infrastructure fund will be created, with the federal government contributing $5.6bn over the decade from the new profits tax. Low-income workers earning less than $37,000 annually win a tax break for their superannuation contributions while many workers aged 50 and older will have the cap for concessional contributions lifted back to $50,000 a year.

It is significant that Henry committee member and Australian Industry Group chief executive Heather Ridout said the result "falls short of bold or sweeping long-term tax reform" but "a pathway to reform now exists".

Swan says this is just the first in a 10-year agenda to process the review. But Labor has killed off 19 of the recommendations and given only vague signals on the others.

Note that these measures over the forward estimates actually save money, with the bottom line stronger in 2013-14 by $2.6bn.

These first decisions on the Henry report are an anti-climax, and that was inevitable given its election-year delivery. The unknown factor is whether the Rudd government will reopen the tax agenda in its second term.