By Shaun Carney
Just another ALP backflip or an early political master stroke? Voters could judge as soon as in eight weeks.
JULIA Gillard likes to present herself as an agent of consensus. As the final week of the winter parliamentary session began 12 days ago, there was consensus within the Labor backbench about the resource rent tax: the leader, Kevin Rudd, had to do something to kill it as a political problem.
Julia Gillard and her deputy, Wayne Swan, announce details of the mining tax agreement yesterday.Credit: Andrew Meares
Hope was running out. The passage of the issue encapsulated much of what had been going wrong with the federal government. A reasonable, or at least politically saleable, proposal began its public life with an overcooked, gimmicky monicker - a "super profits" tax - and was, typically, oversold as a reform.
The longer the government's consultations with the mining sector continued, the higher the temperature of their dispute appeared to get. Heather Ridout, a member of the Henry review team that produced the original template for a resource rent tax, yesterday described the government's rollout of the tax as a "debacle of a process".
Labor was stuck and, on this issue at least, was spinning its wheels. Having replaced Rudd with Gillard, it has now gained traction. Within a week of taking over, Gillard has put the tax issue to sleep.
She is a methodical and sometimes ruthless political operator. She began by cancelling the government's advertising and announced that, unlike Rudd, who would only consult with mining companies, she would negotiate. Then she gave Treasurer Wayne Swan and Resources Minister Martin Ferguson approval to compromise on most of the key elements of the tax proposal in negotiations with the three biggest companies - BHP Billiton, Xstrata and Rio Tinto.
Within a week, a heads of agreement was reached, and the resultant tax structure had a new, more prosaic name: the minerals resource rent tax. To get there, the government had to cop a 10 per cent reduction in its projected revenue from the tax, which is a bit of a haircut, given that this amounts to $1.5 billion. This still leaves the public coffers with an expected $10.5 billion extra. However, the compromise regime does not boast the elegance and smooth lines so beloved of tax experts. It represents a third go at the tax: the Henry review designed a comprehensive mining tax regime, the Rudd government came up with a modified take on that, and now the Gillard government - and the biggest corporations - have forged a bowdlerised version of that plan.
But this was no time to be yearning for delicacy or beauty, because raw political calculations were dictating the outcome.
From Gillard's point of view, this problem had to go away, and quickly - her stature as a different and more effective Prime Minister than Rudd rested on this exercise.
The government needed to be able to say it could still reap a much bigger tax yield from mining, and it also had to continue to offer some extra tax relief to the corporate and small-business sectors, plus improvements in superannuation.
There have been lessons for Gillard and Swan from this experience. One of the less remarked upon aspects of the resource rent tax adventure is how little the Labor Party could rely on support from sections of business that it believed had stood to benefit from its proposals. When the policy was first announced, senior members of the government were confident smaller and medium mining companies would rally behind the proposal, which sought to reduce their financial exposure on more marginal and risky projects. They were wrong; the smaller companies were, if anything, more vicious and unbending in their opposition than the big mining corporations. As a consequence, the government has ignored them in this package. Swan barely bothered to hide his contempt for these smaller companies - and his bemusement at their stance - yesterday.
Similarly, the non-mining corporate and small-business sectors, which gave at best sotto voce public support for the government, will still get something but will also pay a price for their inaction.
Their tax cuts will be scaled back to provide the $1.5 billion in savings necessitated by this agreement. Make no mistake, this is a fix, before an election. The scope of the tax proposal has been diminished substantially. If it had been introduced at a different point in the political cycle, it might have been possible for the government to have stuck to its guns for longer and possibly to have prevailed. But it came to this issue with no real preparatory work and a leader in Rudd who, in his final months as PM, sounded like he was making every public statement from inside a diving bell.
Will Gillard's fix work politically? These things always depend on context. If there's an inclination to give a leader the benefit of the doubt, or if a government is not travelling abysmally, they work. For example, John Howard's election-year reversals on the business activity statement and petrol taxation in 2001, and on MPs' super in 2004, were hailed at the time as political masterstrokes. But even if Gillard has been successful in getting the mining tax off the books as a major political distraction, she still must deal with an equally challenging issue. She was the second-most important individual in the Rudd government and is, by necessity, burdened with whatever heavy policy baggage is left over from that time.
The defining test for Gillard between now and the election - which is probably only eight weeks away - will be to know how much of the government's performance to own and how much to disown. It will in many respects establish the extent, and the limits, of her credibility as Prime Minister.
Yesterday, she and Swan went close to sheeting home the problems with the resource rent tax talks directly to Rudd. There could well have been good reason to do so, but as a standby it is a dangerous tactic. Gillard is clearly counting on a hunch that her assessment of the government - that it was a good administration with a far-sighted agenda that had lost its way through disorganised, dysfunctional leadership - is shared by those swinging voters who got behind Labor in 2007.
Shaun Carney is associate editor.