Taxing Success

The release of the Henry Tax Review saw articles and commentary galore, in particular relating to the Rudd Government's announcement that they were to introduce a Resource Super Profits Tax (RSPT).

But first, out came a Newspoll that led to some members of the media coming close to writing off Rudd as a leader and his government as electable. Nothing could have been further from the truth of course. As we all know, whenever there are two opposing camps competing against one another, both have a chance of success.

Yet the Newspoll was to prove to be anything but a 'rogue' poll, as some commentators liked to imagine. It showed a massive swing towards the Opposition on a two-party preferred basis, with the government down five points to forty-nine percent and the Coalition up five points to fifty-one percent. As the Greens remained stagnant on ten percent on a primary basis, it was 'other' that seemed to be the real winner. All this meant was that Labor voters were moving away from the government they no longer trusted and towards someone 'other' than the Coalition. But as the federal system was one of compulsory preferential voting, Tony Abbott was the real winner.

And so began the commentary on the resource tax. An extra tax on mining had not been a recommendation of the Henry Review. No wonder Ken Henry, Treasury Secretary, looked so grim after the announcement. The review had recommended the resource tax as a replacement tax and had also recommended an easing of corporate tax to twenty-five percent from its current level of thirty percent as a compensatory measure. The government had announced the resource tax as an 'add-on' to existing tax structures and had further announced a reduction in corporate tax to twenty-eight percent. One hopes Henry was being well recompensed for his efforts as it was clear that, for all his hard work and the hard work of those on the Review Board, he did not have the ear of the Prime Minister.

Rudd's idea of reform was to announce the introduction, in one form or another, of only two out of 138 recommendations made by Henry. The second recommendation was the heightening of the superannuation contribution to twelve percent by 2019.

It raised a number of concerns. Firstly, what was a super tax and when did it kick in? The government's explanation was not clear.

Rudd tried explaining it soon after the release of the proposal and got tied up in knots. It seems wise for one never to try to answer a question one doesn't know the answer to. As Abraham Lincoln had once said: "It is better to remain silent and be thought a fool, than to open one's mouth and remove all doubt."

Wayne Swan tried to untie Rudd's knots but with limited success. He had been reported as saying the Super Tax would kick in at a level at which a mining company was declaring a profit over and above that deemed reasonable in a competitive market. But what did this mean? It sounded like a term straight from a lawyer's handbook. We've all heard the old joke that goes something like this: 'Question: How can you tell when a lawyer is not telling the truth? Answer: When they open their mouth.'

In other words, Wayne Swan's explanation was anything but helpful. So how did the resource sector feel about these developments? Clive Palmer, the Queensland mining magnate, was 'pissed off,' to say the least. The fifth richest man in Australia at the time, self-made billionaire, and donor to the Liberal National Party, found himself calling the Federal Treasurer a fool. Not the best way to win friends and influence people, but Clive Palmer was no shrinking violet.

His view, along with that of many others, was that the federal government was taxing success. As Palmer said, the Soviet Union lost the Cold War decades ago - the market economy was here to stay but the resource sector could easily move offshore. After all, where was the love? Where was the incentive to stay?

It appeared possible that taxing success could well lead to a reduction in mining projects, which in turn could see a reduction in employment in the resource sector. Alternatively, to supercede the super tax, mining companies may well engage in some 'creative accounting' that could lead to a reduction in declared profitability.

A reduction in the profitability of the mining sector could see a reduction in the level of revenue projected by government forecasts, and this could, in turn, be anything but compensatory for the increase in costs to the corporate sector as a result of an increase in compulsory superannuation to twelve percent by 2019.

Wage pressure and a reduction in real wage increases as labour costs increased could well result. Potentially this could lead to an increase in collective bargaining and strike action and a potential decline in workforce participation. Ultimately, this could have the effect of a decline in productivity. The flow-on effects were immense.

One such potential flow-on effect was a reduction in share prices. Superannuation accounts are one of the major investors in the share market, including the resource sector. Were the super funds of voters to be effected as a result of the RSPT? And if so, what benefit would they get from an increase in superannuation to twelve percent by 2019? If their salary was to be capped and their superannuation account(s) didn't perform as expected, then how would they be better off as a result? How would this effect their voting intention?

As it turned out, the RSPT was, unlike Swan's explanation earlier on, to kick in at a six percent return, at which time the mining companies were to be taxed forty percent. As similar return could be achieved on a short-term term deposit. ING Direct were advertising on their website a return of six percent on a one hundred and eighty day, one year or two year term deposit with a minimum balance of $10,000.

Debra Cameron, host of Mornings with Debra Cameron on ABC 702 Sydney, could see nothing wrong with the Resource Super Profits Tax. After all, "they've got pots of money," she said. Congenial, amenable, friendly, she had a thing against News Limited, the Melbourne Storm, Tony Abbott and all things anti-Rudder-like. It made for interesting morning radio.

It wasn't the "pots of money" the mining companies had that was the concern, so much as the small companies or businesses that relied on the resource sector for their livelihood. Any negative effect on mining in this country would also negatively effect small business. After all, only about one-third of small businesses were incorporated, meaning only one-third of small businesses could look forward to a measely two percent reduction in company tax. But those small businesses reliant on mining activity in Kambalda, Mount Isa, and elsewhere, had an uncertain future.

As Tony Abbott said in his budget reply, the first role of a government is to do no harm. Millions of potential voters had no confidence this government was doing no harm. It was little wonder their poll numbers were nosediving and rogue polls had become a trend.

Yet one kept hearing from this government that "working families" would benefit from the resource tax. What of retirees, childless couples with a single income, singles working full-time and living alone, university students?

The retiree may well have worked in the mining industry, and have felt the industry in which he worked hard for years had been singled out. The childless couple with only one income may well rely on sub-contracting in the construction industry for their income, and be concerned prices may rise as a result of the resource tax. The university student may well be planning to do work experience in the banking sector, another sector with super profits, and believe that sector likely to be the next to be affected by a super tax.

After all, why single out the resource sector? Surely the mining industry was only the beginning. These people all vote. Were they not important? Did they not contribute to society? Were they for some reason precluded from day-to-day commentary?

One thing was for sure. When exit polls are taken at the next federal election, they will include more than just working families. An important part of our society, but not the only part. A contributing factor, but not the whole. The government was getting tired and stale. And Tony Abbott had been given a segue to the next great big new tax on everything.