A swan plucks a goose
Is Australia about to slay the goose that lays its golden eggs? That is essentially the complaint of the country's mining sector, which has reacted fiercely to the Rudd government's plan to introduce a new windfall tax on its profits.
From 2012-2013, mining giants like Rio Tinto and BHP Billiton would be hit by a 40% 'resource super-profit tax' - an overly punitive tax regime which they claim would stall investment, cost jobs and make the Australian resources sector the most heavily taxed in the world.
Since the strength of the resources sector is one of the major reasons why Australia has managed to avoid the last three global recessions, the mining giants complain that they are being unfairly punished. Rio Tinto's Australian managing director David Peever said that the resources sector had kept Australia out of recession at the height of the global financial crisis. "But the same industry is now being portrayed by the government as not paying its way." BHP Billiton, Rio's great rival, complained that the measure would raise the total effective tax rate on the company's profits from 43% to 57%, undermining the global competitiveness of Australian mines.
Few people outside of the mining sector will be shedding many tears, which may partly explain why Kevin Rudd has walloped these corporate giants with such a hefty tax hike. BHP Billiton recently announced profits of $6.14bn for the six months ending 31 Dec, more than double the result of a year earlier. Rio Tinto posted profits of $4.9bn for 2009, up a third over the previous year.
Certainly, Kevin Rudd has framed the measure in overtly populist terms. He has said that the nation's resources belong to the people and that they deserve a bigger share, especially in times of plenty. The increased revenue from the mining sector will also help underwrite superannuation changes which will make pensions more secure, another voter-friendly move. The Australian treasurer, Wayne Swan, has argued you cannot have one without the other.
The shadow treasurer, Joe Hockey, has raised the specter of Australia's remarkable post-war prosperity being put in peril. He said the new tax would kill off the mining boom, fuelled by the rise of China and India, which he compared to the "golden goose who is laying the eggs for the foundation of Australia into the future". The resources sector has also shown that it can play populist politics, arguing that new tax would bring down Australia's comparatively high standards of living.
The announcement of the new tax follows the publication of the long-awaited Henry tax review, which was headed by Ken Henry, the leading civil servant in the Treasury and one of the most influential men in Australia. Ultimately, the Henry review made 138 recommendations. The Rudd government has adopted only four.
Much of the commentary in the papers today follows the same analytical line as the response to Kevin Rudd's decision last week to shelve the emissions trading scheme: that he is cautious to the point of cowardice.
Days after describing the ETS decision as one of the most the spectacular climbdowns by any Australian government in decades, The Australian's Paul Kelly notes: "In its highly selective response, Labor has avoided losers, averted sweeping changes to the income tax system, shown an election-year caution."
In a column entitled "It's not the economy, it's the election, stupid", Peter Hartcher notes in the Sydney Morning Herald that the central thrust of the mining tax 'is to raise a new tax to give benefits to the swing voters that Rudd most fears losing to Tony Abbott.'
Are we in danger of looking at everything through the prism of a politics, of being unfairly reductionist? Or is that merely the way that Kevin Rudd views his planned reforms?
Greg Warner and Floyd, I am in total agreement. That opening about the tax being "overly punitive" was meant to be attributed to the mining companies, but you are right it does read as if it is my criticism, which is wasn't meant to be. Mea culpa.
To throw in some more political context for all this, a new poll out on Tuesday suggests that the opposition coalition has overtaken the Labor party in what's called the two-party preferred vote for the first time since 2006, which was back in the days when Kim Beazley was leader of the ALP (now, of course, he is Australia's ambassador in Washington).
Though Kevin Rudd is still the preferred prime minister by a comfortable margin - 50% to 32% for the opposition leader, Tony Abbott - the poll suggests that his personal satisfaction rating has dropped sharply. You can read more details from the poll here.