Abbott must share the blame for tax stuff-up
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Ross Gittins
THE SYDNEY MORNING HERALD'S ECONOMICS EDITOR
Read more: http://www.theage.com.au/business/abbott-must-share-the-blame-for-tax-stuffup-20130217-2el60.html#ixzz2LDpkESpa
Read more: http://www.theage.com.au/business/abbott-must-share-the-blame-for-tax-stuffup-20130217-2el60.html#ixzz2LDnx0N7m
Illustration: michaelmucci.com
WHEN governments stuff up in a democracy we think the solution is obvious: toss 'em out and give the other lot a go. But if you want a democracy that also delivers good government, it ain't that simple.
For too long, the private partisanship of those who want to see good economic policy lead to good economic outcomes has blinded us to an obvious truth: if you look back at the reform we've implemented, you find almost all of it happened because it had the support of both sides.
It's been too easily forgotten that all the potentially hugely controversial reforms of the Hawke-Keating government - deregulating the financial system, floating the dollar, phasing out protection and moving to enterprise bargaining - were supported by the Coalition.
Amazingly, the last big move to slash protection came during the depths of the recession of the early 1990s, when unemployment was on its way to 11 per cent. Dr John Hewson's big criticism was that Labor should have been bolder.
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How did Labor have the courage to do such things? It's simple: it knew any adversely affected vested interests would get no sympathy from its political opponents.
Most Australians - even those who follow politics closely - don't realise how obsessed politicians are by the likely reaction of their opponents to anything they do; how much the policies of the opposition affect the policies of the government.
After Paul Keating failed to win his party's support for a broad-based consumption tax in 1985, he set his face against a goods and services tax. His scaremongering over Hewson's proposed GST was the main reason he won the unwinnable election of 1993.
After Keating's demise at the following election, the Labor opposition abandoned all bipartisanship on economic reform, running another scare campaign against John Howard's GST plan at the 1998 election and going close to defeating him.
This makes the GST the honourable exception to the rule: the only major economic reform we've seen survive without bipartisan support.
And it brings us to the mining tax. Let me be crystal clear about this: Labor has made an almighty hash of the minerals resource rent tax, revealing an abysmal level of political nous, moral courage and administrative competence.
It failed to release the Henry tax reform report for discussion well before announcing its decisions (thereby catching the miners unawares), failed to explain an utterly mystifying tax measure (and, before that, press Treasury to come up with something more intuitive).
It failed to stop the entire business community joining the miners' crusade against the tax, failed to counter the economic nonsense the miners peddled in their TV ad campaign, and failed to hold its own in the negotiations with the big three miners, allowing them to turn the tax into a policy dog's breakfast that, at least in its early years, would raise next to nothing.
In all this Kevin Rudd has to take much of the blame (for lacking the courage to release the Henry report early), Wayne Swan has to take much of the blame (for not putting Treasury through its paces and being so weak at explaining the tax) and Julia Gillard has to take much of the blame (for decapitating Rudd and then being so desperate to rush to an election she was prepared to agree to anything the miners demanded, without proper Treasury scrutiny).
After all that, Labor deserves no mercy. But the truth is Tony Abbott also played a part in lumbering the nation with a bad tax.
The case for requiring the miners to pay a higher price for their use of the public's mineral reserves at a time of exceptionally high world prices (even now) is strong.
Remembering the miners are largely foreign-owned, a well-designed tax on above-normal profits is a good way to ensure Australians are left with something to show for all the holes in the ground.
Similarly, the argument that a tax on ''economic rent'' (above-normal profit) is more efficient than royalty payments based on volume or price is strong, as is the argument that taxing economic rent should have no adverse effect on the level of mining activity. Relative to royalties, quite the reverse.
But Abbott cared about none of that. His response was utterly opportunistic. He would have opposed the tax whether it was good, bad or indifferent.
He saw an opportunity for a scare campaign and he took it, particularly when it became clear the big three miners were out to defeat the tax by bringing down the government and so would have bankrolled his election campaign.
It was fear of what Abbott would say that prompted Labor to delay the release of the Henry report until it could rule out most of its controversial recommendations.
It was the success of Abbott and the miners' joint campaign against the tax that, added to his loss of nerve on the emissions trading scheme, made Rudd vulnerable to his enemies within Labor.
And it was Abbott's strength in the polls that made Gillard so anxious to square away the miners at any cost and rush to an election while her (as it turned out, non-existent) honeymoon lasted.
But noting Abbott's share of the blame isn't the point. The lesson for people hoping for economic reform is that unless they're willing to use what influence they have to urge bipartisanship on their own side, they should expect precious few further advances.
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