Ken Henry is no Paul Keating, nor was he meant to be

WHEN Hamlet soliloquised about shuffling off the mortal coil, he cited "the insolence of office" in the same breath as "the pangs of disprized love". Judging by the presentations at an Australian National University conference earlier this week on tax reform, he could have had Canberra in mind.

Speaking at that conference, former Treasury secretary Ken Henry pinned the failure of the resource super-profits tax on its being "too complex for the public to understand". Those complexities were not clarified as "it is almost impossible in Australia, perhaps because of the way politics works, perhaps because of the way media works, perhaps because of the way they work together, to have a debate about concepts".

The product, in other words, was excellent; unfortunately, the media and the public were not clever enough to understand it. Perhaps. But democracy is government by explanation. And the explanations must be good ones. Yet the explanations for the RSPT were inadequate from the start.

It was bad enough that Kevin Rudd and Wayne Swan stumbled every time they were asked how the tax would work. But to make matters worse, the analysis on which the proposal rested was anything but convincing.

Its supporters claimed miners made super-profits, but excluded the lean years of the 1980s and 90s from the calculation. They claimed royalties were grossly distorting, compared with the petroleum resource rent tax; but their evidence simply assumed, without clearly disclosing the fact, that the PRRT imposed no distortion at all. As for their estimates of the distorting effects of royalties, it was impossible to derive them from the data in the Henry report, and they are likely to have been greatly overstated.

If all that did not inspire confidence, the tax itself was nothing to write home about. Announced as a fait accompli, nanoseconds sufficed to expose serious design defects. The government would take a 40 per cent stake in all the projects that had succeeded, without compensating investors for the many that had failed.

As for those costs it did recognise, all that miners would get in return was a promise from the government to pay, on which interest would accrue at the commonwealth bond rate -- that is, at far less than mining's cost of capital. And no thought had been given to the fact that many miners are highly leveraged: with the RSPT taking 40 per cent of their profits but none of their debts, they would become insolvent.

Like a house constructed from an architect's sketch, but which had never benefited from the services of a builder (much less a plumber), this was an abstraction in search of a victim. Little wonder it had never been tried elsewhere. And little wonder the intended victims were less than enthusiastic about placing their heads on the block.

It would be easy to claim its opponents were merely vested interests in the mining industry. But the public knew it was not the dazzling brilliance of the federal Treasurer that saved Australia from the global financial crisis: it was the resource boom.

They were therefore deeply troubled by a proposal that could jeopardise our prosperity when the global economy remained menacing. It wasn't that they didn't understand it; it was that the more they understood the proposal, the less they liked it.

It was those flaws that ensured the RSPT decisively lost the battle of ideas. For its supporters had every opportunity to make their case. With this paper alone publishing dozens of columns on the subject, they proved singularly unable to do so.

None of that is to dispute Henry's argument that tax reform is hard work: of course it is. Voters are understandably concerned about governments abusing their taxing powers; they need to be convinced changes are in their long-term interests.

Those leaders who can, do -- as did Bob Hawke and Paul Keating, John Howard and Peter Costello; those who can't, such as Julia Gillard and Swan, try bribes instead. That is a loser's strategy, as the carbon tax shows. But blaming it on politics, the media and the public makes no sense at all.

Australia's politics is robustly democratic. So is its media. That has always grated on those who see themselves as engineers of the public beneficence. And yes, at times, it may have led to good proposals not being adopted. But the RSPT was not one of them.