Labor's success has set the scene for a high-stakes election showdown

THE government is passing lists of wide-ranging legislation the Coalition has pledged to repeal.

THIS week has seen an aggressive assertion of Labor values, trade union powers, special deals to save jobs and Labor's commitment to redistribution via the tax system revealed in Julia Gillard's carrying the mining tax through parliament.

The Gillard government, off the back of its alliance with the Greens and support from independents, is changing Australia decisively. Unswayed by poor poll ratings, Gillard is doing what she promised - getting her agenda through the parliament. The process is confused and chaotic, but Labor is on a roll. In the process, Gillard strives to redefine the political contest.

Any idea of a mid-term election is dead. Gillard has a grip on the parliament and it will run full term. Tony Abbott, powerful in the country but conquered in the parliament, watches with anger as the Labor-Greens alliance legislates a series of historic policies that he hates. Each session, the laws Abbott is pledged to repeal mount relentlessly. The Greens have a formula: they always distance themselves from Labor but give Gillard the big legislative prizes she needs to keep alive.

The manager of opposition business, Christopher Pyne, re-drew the map yesterday. "We are no longer a hung parliament," Pyne said on ABC News Radio. "This is no longer a minority government. With Peter Slipper's defection to the speakership, the Labor Party's position in the parliament is now 76 seats with their allies and the Coalition is 73 seats with its allies. So it is of absolutely no surprise that they are getting their legislation through."

This is a formal surrender of the Coalition's once heady belief that Gillard, or Kevin Rudd as her successor, would end up at an early poll. Abbott and Pyne need a narrative to explain Labor's legislative success so they now describe the Labor-Greens-independents as a "ruling alliance" with the numbers in both chambers. Get the shift - we have moved from an illegitimate Labor minority government to a Labor ruling alliance.

Yet Labor's success inside the beltway is mocked by a bitter polarisation that only grows within the nation. This weekend Queensland is expected to join NSW in a repudiation of state Labor. The final Newspoll has the Labor vote below 30 per cent, more evidence the Labor brand is toxic. This defeat will leave the Coalition governing in the four main states, virtually the national economy, reducing Labor's state assets to South Australia and Tasmania.

The Labor brand is being routed at the ballot box. Abbott declared a people's revolt but the parliament has told the people's revolt to get lost. Gillard and Wayne Swan still command the instruments of power. Yes, their command is qualified, witness the Greens revolt on the corporate tax cut, but the truth is obvious: the Labor-Greens alliance has enough shared ground to entrench its agenda.

Statute is power. Gillard had legislated previously the carbon pricing scheme and the National Broadband Network. This was a critical week, consider the big-ticket items she added to that list.

After two years of horrors Swan finally got his revised mining tax legislated with its modest $10.6 billion over the forward estimates; Labor has legislated the iconic increase in the superannuation guarantee levy from 9 per cent to 12 per cent, long a Labor-trade union aspiration; the key claim of the construction unions has been met with abolition of the Australian Building and Construction Commission and weaker industry watchdog functions now located under the umbrella of Fair Work Australia; means testing the private health insurance rebate was recently won; and Gillard hails Labor as saviour of the Australian car industry with yet another announced package, this time $275 million for GM Holden, in a decision she calls "a great day for Australian carmaking" and "a good day for smart policy".

The demise of Rudd has energised and liberated both Gillard and Swan. Gillard presses ahead with a busy agenda to destroy one idea above all others - that Labor doesn't stand for anything or believe in anything. She hates this talk and is determined to bury it.

Swan has assumed a more assertive role. His attack on the wealthy miners frames Labor's tactic - to discredit Abbott's anti-mining tax stand and to unite Labor with its traditional base that has been stolen by Abbott. This is the prelude to Swan's May budget and a new drama: the unveiling of a 2012-13 budget surplus to prove Labor's responsibility after the fiscal stimulus and ruin Abbott's deficits crusade against Labor.

Amid such turbulence is the over-arching issue: will this entrenchment of Labor's agenda and assertion of Labor core values trigger a political recovery or merely deepen the nation's majority hostility towards brand Labor?

Gillard's sense of triumph with frustration was on vivid display this week. Riled by a media question about the threat to Labor's plan to use mining tax proceeds to finance a corporate tax cut from 30 per cent to 29 per cent, Gillard shot back: "First and foremost, I come to these press conferences a lot and I get told at every one of them: 'Gee, you won't get X or Y through.' I have put up with months and months of scoffing about the carbon price. Guess what? It's the law of Australia today.

"I have put up with months and months of scoffing about the minerals resource rent tax. Guess what? It went through the Senate last night. Before we start on a process of months and months of scoffing about whether or not we will get through the company tax cuts, I think I'm entitled to go scoreboard and at the moment it's running more in my favour than yours."

Gillard is right. Labor is making the minority parliament work.

This has a dual legacy. It gives Abbott a bigger target (he campaigns to repeal both the carbon and mining imposts) yet it must raise public doubts about Abbott's ability to dismantle Labor's growing edifice. "The Labor Party always chooses to celebrate when they are hitting us with a big new tax," Abbott said in response to the mining tax passage. "Come the first of July, Australia will be hit with two big new taxes. They'll hurt your family and they'll hurt your job."

But these measures are different. The carbon price applies to corporations and they will pass on costs to consumers. It is unpopular and will stay unpopular.

The mining tax raises revenue from mining companies to redistribute to the rest of the economy via corporate tax cuts. The mining tax has been an electoral plus since the big three miners (BHP Billiton, Rio Tinto and Xstrata) struck their deal with Gillard.

Mining chief Clive Palmer's eruption on to the media stage this week courtesy of his CIA allegations was a gift to Swan and Labor. At week's end another Swan target, Andrew Forrest, said if you disagreed with Swan, "then you're un-Australian, undemocratic, probably communist" . Hopefully they know mining, because they don't grasp politics. The resources sector runs the terrible risk that Palmer becomes its public face, such optics being disastrous, with Labor possibly assessing the prospect of taking more money from the sector in the May budget.

The problem for Labor, however, remains the flawed design of its mining tax package. While coming from different directions, the opposition and Greens believe the $10.6bn revenue figure is exaggerated. If the revenue doesn't materialise Labor will look foolish. Beyond this, Labor needs to legislate its across-the-board corporate tax cut that the Greens want to limit to small business. This tax relief is pivotal to the integrity of the entire mining package.

Abbott's opposition to the tax cut is a political negative for him - yet Abbott would expose himself to charges of fiscal irresponsibility if he rejected the mining tax but voted the corporate tax cuts.

In reality, this is Labor's problem. Gillard and Swan need to find some method to deliver tax relief to non-mining corporate Australia, now under growing competitive pressures precisely because this was one of the originating motives for the mining package.

The in-principle case for a national mining tax based on profits is persuasive, yet business agitation about this model runs deep. Business Council of Australia chief Jennifer Westacott said: "We are opposed to this (mining) tax. We think it's flawed." She said in 2008-09 miners paid $18bn in tax, more than the entire SA budget.

The mining tax pays for the tax concessional treatment arising because of the extra 3 per cent superannuation levy. The tax, however, does not finance the critical cost, the increase in the levy from 9 per cent to 12 per cent. There has been much confusion on this point. Business feels exposed because Labor legislated the 12 per cent out to 2019 without any explicit means to fund it.

The core point is that super contributions originated and grew within the 1980s ALP-ACTU Accord and were negotiated outcomes. Indeed, the initial 3 per cent contribution was part of the 1985 Accord Mark II, where the ACTU agreed to a 2 per cent real wage cut and the government supported before the Industrial Relations Commission the 3 per cent employer contribution. It was a trade-off. But that model no longer exists.

The corporate tax cut aims to boost competitiveness and productivity. Swan argues it also helps business to fund the super costs.

In truth, funding super will be sorted out in employer-union enterprise bargaining and the trade unions, so far, show no interest in deferring any wage rises for this cause.

In short, Labor's successful implementation of its agenda means the stakes involved at the 2013 election are now huge with Labor, unions and Greens defending a long list of legislative gains that Abbott seeks a mandate to repeal. The polarisation in politics is set to continue as far as the eye can see.