Gloves come off

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This was published 13 years ago

Gloves come off

By Shaun Carney

The government has realised that the mining companies won't respect it unless it plays hardball.

DURING this week's regular meeting of the federal caucus, Treasurer Wayne Swan characterised the government's plan for a resource rent tax as ''a Labor thing to do''. The Labor Party's opponents would agree, but not in ways that would reflect well on the ALP.

They argue that the government is waging old-fashioned class warfare, or conjuring up a tax to cover its past financial profligacy, or wilfully wrecking the most important part of the economy, or yet again demonstrating that it does not know how to create and implement a far-reaching policy - or all of the above.

What Swan meant, and his Labor colleagues understood his meaning, was that the tax proposal conformed to modern Labor's view of itself as the party of genuine economic reform, willing to stand up to some of the biggest and most powerful vested interests in the country.

Swan's stocks have risen within the caucus, firstly as a result of the budget, but more importantly because of the way he has advocated the resource tax.

On Sunday, Swan set off a dirty bomb when he claimed that data from the US-based National Bureau of Economic Research proved that mining companies in Australia did not pay their fair share of tax. During the next couple of days, the veracity and authenticity of the data came into serious question, culminating in the authors of the study expressing concern about their material being used out of context.

But from the government's point of view, the claim and counterclaim about the research's provenance that dominated the national political debate at the start of the parliamentary week did not matter.

What mattered was that the important message had been disseminated: these big, very successful companies, many of them led by foreigners, were shirking their responsibilities when it came to paying tax.

It has taken almost a month, but the government has finally worked out that if a new tax is to be imposed on a sector, the basic reason for the proposal has to be established. Ending that sector's tax holiday is the best place to start.

It was not the only penny to drop for the government this week. The fury over the mining companies and their payment of company tax effectively brought the political debate involving the government, the opposition and the companies to a cacophonous standstill.

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The high-point of shrillness was reached when more basic and instinctive responses started to kick in.

Within the government, the vigour and scope of the campaign against the resource rent tax by the mining sector has underscored and consolidated a basic truth: the mining companies will not respect Labor unless the government itself plays hardball. The sector loved WorkChoices and did not like Kevin Rudd's replacement Fair Work regime. Rudd dug in and prevailed. Last year, Labor's attitude changed and it decided to play friendly.

The companies fought the government's emissions trading scheme in its original form. Like any special-interest group determined not to give up any more than it had to, they pushed for concession after concession. Rudd and Climate Change Minister Penny Wong gave in.

Eventually, the scheme was so weakened, so compromised by the concessions to big polluters that even many advocates of a cap-and-trade system could barely see any policy value in the Rudd-Wong version.

This undermined public confidence in the policy. Ultimately, last month, the government pushed the policy to one side, to its great cost. The lesson for Labor, which it seems to have absorbed, is that there is no political dividend when it gives in to the mining companies.

In fact, the government has seen value in giving the sector a touch-up, as evidenced by Rudd's decision to pull out of next week's Minerals Council of Australia dinner. Labor MPs were happy to learn of this on Thursday.

As the miners have become more intense in their campaign against the tax, frustration has grown within the government. ''From our point of view, this is why Swan's argument on the companies not paying their fair share of tax was such good stuff,'' a Labor MP said yesterday.

''We're negotiating with these companies, looking at finding ways to work with them and get a workable version of a tax on super profits, while they're out there going at us hammer and tongs. We had to play it straight. They've made all sorts of threats and threatened a strike of capital and said all sorts of things about how we've killed the country as an investment destination, and we've had to sit mum. Well, that stopped this week.''

From the moment Swan announced the resource tax proposal on May 2, the Minerals Council's campaign has been predicated on the expectation that the government, under pressure, will wilt and drop the tax. Labor's performance on the emissions trading scheme understandably would have led the council to think it could pull this off.

This will turn out to have been a heroic and arrogant assumption. The government needs this fight for a host of reasons: to overcome the distortions of the emergent two-speed economy; to regain its own sense of authority; to return to its 2007 theme of a fairer Australia; and to improve its engagement with small business and the non-mining sector.

The big mining companies argue that they were the only thing that saved Australia from recession, an argument embraced by Tony Abbott.

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Treasury secretary Ken Henry this week scoffed at the assertion, but that will not be the last word. Expect the government to build on Henry's rejection of that argument as this fight gets more spirited and, probably, more vicious.

Shaun Carney is associate editor.

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