It has now emerged that the Rudd Government deliberately laid the groundwork for a federal election to be pitched between wealthy mining companies and the rest of the working taxpayer population well before the May Budget.
Arguably this has created the potential for an economically divisive conflict on lines not seen in Australian politics since the 1949 election, when Labor Prime Minister Ben Chifley attempted to nationalise the banks.
Either the Rudd Government has lost any sense of a cohesive strategy or it has decided to gamble all its remaining political capital on a policy designed to rekindle its credentials as a traditional but reformist party of the worker.
Consider the following scenario:
First, the Prime Minister Rudd ditches the emissions trading scheme (ETS), a policy so fundamentally important he claimed it constituted the greatest moral challenge of our epoch.
Why did he do this? Because he feared the Opposition was going to mount an election scare campaign based on a “great big new tax on everything”, with a particular focus on the mining industry.
Yet almost at the same time it appears his Treasurer, Wayne Swan, was putting together the final touches to a completely different “great big new tax” on the same sector of the Australian economy, and one whose profitability enabled it to avoid the worst of the financial meltdown other Western countries had experienced.
And to win the political argument in favour of the tax, the Government decided to wage war on the same sector, including accusing it of allegedly failing to pay its “fair share” of taxes, even if this mean trashing the reputation of the Australian Taxation Office by effectively saying it had been under-taxing mining companies.
The great irony of course was that the new RSPT (resources super profits tax) was just as complex and difficult to explain as the ETS.
For, during the first fortnight after the announcement of the RSPT, it was clear that neither Mr Swan nor the Prime Minister was fully conversant with the details of the new tax.
In a recent opinion piece, Professor George Fane of the Australian National University explained: “To adapt an aphorism attributed to Ed Murrow, anyone who is not confused by the RSPT cannot have understood it. The accounting rules are too hard for economists, the economics is too hard for accountants and it is all too hard for everyone else.” (“Reputation of the nation on the line”, The Australian, May 31).
Evidence of the Government’s deliberately provocative strategy comes from an April 20 letter, in which the Government moved to circumvent its own hands-off advertising rules in order to fund a $38 million ad blitz designed to counter an anticipated reaction from the mining industry.
The order shows that the Government had been planning for this outcome for at least a month before the May Budget, and possibly earlier.
In other words, the Government expected a showdown with the mining sector and chose the route of confrontation rather than one of attempting to bring the industry inside the tent to devise a mutually agreed new national royalties regime.
According to reports, it also appears that key Labor frontbenchers with close ties and good standing and experience with the industry, such as Resources Minister Martin Ferguson and former Woodside counsel Gary Gray, were not included in the decision-making process.
Rather, the decision to proceed with the RSPT was made by the cabal of four, which has largely replaced the traditional Cabinet system under this government: Prime Minister Rudd, Deputy Julia Gillard, Treasurer Wayne Swan and Finance Minister Lindsay Tanner.
But having started the fight with its surprise ambush in the May Budget, the Government appears shocked at both the ferocity and effectiveness of the miners’ campaign, and stung and disappointed that voters have not swung in to support the Government’s new tax.
When asked by Newspoll if they thought the proposed tax would make them “personally better off or worse off”, 31 per cent said worse off and 22 per cent said better off. Further, just 41 per cent thought the tax would be good for the economy compared with 37 per cent who thought it would be bad.
This is hardly the ringing endorsement by the electorate that the Government had hoped for when Mr Swan brought down the Budget.
As for the miners, they have put aside their competitive rivalries and are united against the tax as never before, while being prepared to fund their own advertising campaign to fight the tax.
They have variously accused the Government of a form of nationalisation, of introducing a retrospective tax, of threatening to undermine Australia’s prosperity and of creating sovereign risk with a tax regime by adding a new risk factor for all foreign investors.
With his legacy as Prime Minister at stake, Mr Rudd has decided to gamble all on the RSPT. But the problem for Mr Rudd is that having shredded his credibility, he has lost many of the people who once believed in him, and among his biggest detractors are people inside the Labor Party.