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May 17th 2010 print

David Flint

Nation falls as Rudd fails

The government managed to hide from most Australians the fact that if the budget does go into surplus in 2012, there will still be a massive debt of around $100 billion. That is why it is eying the mining industry to pay at least the interest.

Could this government possibly do even more damage before the election? 

There has not been in the history of Australia a more wasteful, profligate, and incompetent administration than the Rudd government. Apart from mishandling diplomatic relations with China, Japan, India, Indonesia and the United States – a singular achievement for a former diplomat – little attention has been paid overseas to the gross maladministration here.  

The government was able to pretend that it was responsible for the limited impact of the global financial crisis on the Australian economy. But this was not due to its profligacy and astounding waste. Even gullible journalists are now admitting that the surplus and sound regulations of the banks bequeathed to them by the preceding government, and the Chinese boom were the principal reasons for the strength of the Australian economy.

Then on 2 May the government did something extraordinary, something which seriously damaged the reputation of Australia as a safe place for investment. Not for the first time the Prime Minister behaved as if he were the tinpot dictator of some banana republic, forgetting that he is no more than the untenured head of the federal government of one of the world’s most stable democracies.

His foolish antics on that day were noticed in financial circles all around the world. This was exacerbated by his xenophobic attacks on foreign investment. He was supported in all of this by an inner cabinet who are just as culpable – Julia Gillard who ran the BER stimulus programme with rare incompetence, Wayne Swan and Lindsay Tanner, who as Finance Minister is supposed to ensure these rorts and this financial mismanagement just does not occur. Far too many examples of this have occurred on his watch.

The Prime Minister had mishandled the tax review from the beginning. He had the Secretary to the Treasury preside over it, thus ensuring it would be about raising more taxes rather than lowering taxes to encourage the private sector. The appointment also ensured the Secretary could not perform his key role of providing independent advice on the review. 

Under the Westminster system, the convention is that a government tables such a review in the Parliament. This is to allow a full debate there, and in the country, before the government then responds in the Parliament. We have long been governed under the Westminster system – this is not Zimbabwe. But our Prime Minister has little regard for such niceties. The report, which he had sat on for months, was put into a four hour lock-up for the media and the opposition.

But there was worse, far worse. The government’s response was also fed into a prison like lock up. There was no opportunity for a debate or for consultation with those most affected. And as is the modus operandi of the Prime Minister, the essence of the government response was declared non-negotiable, a fait accompli. You would expect this sort of behaviour from Robert Mugabe or some other dictator, not from an Australian Prime Minister.

This was a disgraceful contempt of the Parliament, the members and the senators.

The terms of the tax are rapacious. All mineral resources are to be subject to a 40% tax – after they pay both corporations tax and the GST – on what are mendaciously termed “super” profits. These were unbelievably assessed as all profits above the long term bond rate. The government offered a carrot – it would come in as a partner and incur 40% of the losses. You can be sure that this will not apply to those projects which had failed before the current successful ones emerged. And it seems foreign government investment will not be excluded. They will be smiling in Beijing.

The Prime Minister threatens that if the Opposition and the cross bench do not roll over and let this through, 2% will not be shaved off corporations tax, and the increased superannuation not be available. Why the latter should be the case is not clear; the additional superannuation contributions are to be paid for the employers, not the government.

It is also said there won’t be money available for infrastructure – this from a government which wasted much of the stimulus package on school buildings costing two or more times more than the norm, dangerous and rorted roofing insulation and large cheques spent mainly on imported plasma TV’s and such products. 

The government justifies the tax by claiming it owns all minerals. It hides behind the words “the Australian people”, but the people are not going to spend it. There is not a skerrick of truth in this claim. Onshore minerals outside of the territories are owned by each State – technically, the Crown in the right of Western Australia, the Crown in the right of Queensland, the Crown in the right of South Australia etc.

The Prime Minister has form in planning to seize assets and income belonging to the States. He tried this when he sought to wrest away almost one third of the GST. But when John Howard went to the barricades so he could so generously give this tax to the States, Kevin Rudd slammed the GST as a “fundamental injustice” in 1999.  Now, rather than winding down this fundamental injustice, he wants almost a third of it. To his credit, Western Australian Premier Barnett is standing in his way as the Senate should.

The government claims the super tax is similar to the resource rent tax on offshore petroleum. It is not. When the Whitlam government seized all offshore petroleum and minerals, the High Court supported it. Whatever one thinks of that Court’s centralist thinking, the ruling does mean that that the Federal government owns offshore resources. More precisely they are owned by the Crown in the right of the Commonwealth. Except in the territories, the States own the minerals. Moreover, the petroleum tax only applied to new ventures, and came in well above the long term bond rate.

Kevin Rudd says the state royalties on their minerals are not high enough. This is, frankly, none of his business. Rather than telling the States how to run their affairs, he should concentrate on improving the appalling quality of his administration.

The royalties presumably are those applying when the decision to invest was made. The States may determine new royalties for new investments, but the good name of Australia would be damaged if they sought to change the royalties on existing resources.

Unfortunately the good name of Australia has already been damaged by Kevin Rudd’s attempt to impose retrospective dictat. Around the world there is a belief that Australia is about to become the highest taxing country in the world, and that we cannot be trusted not to change the rules after an investment is made. This can only be corrected if this new tax does not proceed.

This super profits tax has been denounced by Clive Palmer, Andrew Forrest and other miners as a nationalisation. It certainly looks like a nationalisation of assets owned by the States who have granted mining rights to the miners in return for royalties. If it is enacted it will be challenged. There will be at least three questions for the High Court.

The first question is, does this constitute an acquisition, rather than a tax.

If it is an acquisition, the second is whether this is for a purpose for which the Commonwealth has power to make laws.

And thirdly if it is an acquisition, is it on just terms. At least we know the answer to this third question.

The 2010 budget released days after is predicated on the introduction of the super tax. This was not so much a budget for this year – central to it was a spin doctored message that the budget would return to surplus in 2012. This projection is as useful as a weather report made now for 1 July 2012. It was the dominant message in the media.

News bulletins and headlines did not mention the real story. This will be accompanied by a massive accumulated debt of something close to A$100 billion. Financing that will force interest rates sky high and the new super profits tax will probably just cover the interest.

Australians are beginning to wonder what more damage this government will do before the election?