Showing posts with label Rudd. Show all posts
Showing posts with label Rudd. Show all posts

Monday, May 24, 2010

Shonky advisers have led Rudd badly astray

Kevin Rudd has his back to the wall. He's no fighter, but he has little option but to stand and fight for his bitterly resisted resource super profits tax. With luck the experience will help turn him into the more substantial figure we need to lead us.

All Rudd's instincts - and those of the Hollow Men on whose counsel he relies - must be to ditch or greatly water down a tax he now discovers has proved hugely unpopular with the miners and which an economically uncomprehending business community doesn't like the sound of.

For a man who's always searching for a soft cop - those "reforms" that are riding high in the opinion polls, such as health care and, formerly, action on climate change - this must have come as a great shock to him.

But Rudd has no choice but to stand and fight. Having instantly shredded his credibility with his cowardly decision to cut and run from his emissions trading scheme when its popularity slipped, he simply can't afford another blow to his reputation.

If that's not enough, there's this: almost all the nice things he's promising to do if he's re-elected - cut company tax, help small business, further subsidise superannuation and the rest - hang off the resource tax. No tax, no goodies.

Normally, a prime minister has room for tweaks to placate the vested interests, but this time Rudd has none. His credibility is too low.

And the precedent of weakness he set with all his cave-ins to miners and other rent-seekers over the emissions trading scheme means giving the miners something this time would be more likely to further incite their greed than calm them.

Rudd is a weak man fallen among thieves. He may be from Queensland, but his moral compass now comes courtesy of Sussex Street. I'm sure he remains convinced of his own uprightness, but clinging to office comes first.

Actually, for a bunch that puts political expediency above all, Rudd's cynical advisers have made a succession of bad calls. They imagined they could give in to the rent-seekers on emissions trading without being seen as an easy mark on every subsequent business issue.

They quailed at the thought of defending "a great big new tax" at a double-dissolution election, and deluded themselves that if they ditched the emissions scheme no one but a few greenies would care.

They commissioned the Henry tax review without thinking through the implications of having it lob just before an election. Then they imagined they could turn it into a get-out-of-jail-free card.

Introduce a big new tax on a group for which no one had much sympathy - the big, largely foreign-owned mining companies - then use it to pay for a raft of supposed reforms, carefully chosen for their vote-catching abilities, without adversely affecting the return to surplus.

And this lucrative tax came with the economic rationalists' Good Policy seal of approval, co-signed by Dr Ken Henry and Professor Ross Garnaut. Economic imprimaturs don't come from any higher authority.

One small problem: the resource tax is so pure - so carefully designed to ensure it doesn't do all the bad things it's being accused of - that it's impossible for anyone who's not a paid-up economist to understand.

Worse, its most prominent feature, the allowance rate set at the long-term bond rate, makes every ignorant Fin Review reader (and most of the business commentariat) imagine they can see the glaring flaw Henry and Garnaut missed. Yeah, sure.

We must assume that, unlike all the rest, the miners themselves have studied the complex design of the tax and disabused themselves of this beginner's error. But are they going to dispel or to exploit the business punters' illiteracy? One guess.

Did Rudd's whatever-it-takes political smarties see that one coming? I bet they didn't. Nor did they foresee the way the miners, aided by a hostile state government, would use the tax to heighten the West Australian electorate's resentful delusion that their state's propping up the rest of the economy Back East.

Did it occur to the political experts that all Tony Abbott had to do to solve the Liberals' acute lack of election funding was to oppose the tax then pass the hat round the miners? I doubt it.

Did it occur to the spin doctors that getting the business community and even the wider electorate to accept the wisdom and fairness of this tax would require an enormous effort by expert wordsmiths to formulate and feed ministers with simple ways of explaining the otherwise incomprehensible, rather than relying on their usual tricks of emotive slogans and manipulating the news cycle?

I doubt it. You can see that from the way some smarty decided to rename the Henry report's resource rent tax as the resource super profits tax. The half-baked notion was to heighten the great unwashed's resentment of foreign mining giants.

What it actually did was heighten the resentment of the miners and the sympathy of the wider business community by rubbing in the notion that this was an additional tax on company profits, levied at 40 per cent. That's a false perception, but it acted as red rag to a bull.

Had the perception managers understood the economics, they would have realised the measure was more a complex-calculated price for the use of natural resources owned by the Australian people than a tax, and renamed it something like the "reasonable royalty charge".

Rudd has been badly served by his spin doctors and advisers. They've led him astray and dropped him in it. If he's got any sense he'll switch to giving the electorate what it's shown it wants: a leader who is honest, straight-talking and principled.