It's Not Class War, It's Good Economics


Remember the controversy over the mining tax — the so-called "resource super-profits tax"? Labor does. The vicious campaign mounted against the government on the issue caused huge damage to Labor’s hitherto healthy standing in the polls, and was the final nail in the coffin of Kevin Rudd’s prime ministership.

Yesterday, Wayne Swan was reminding us of that brutal battle. "The combination of deep pockets, conservative political support and of course the ranting of the shock jocks more and more brazenly has sought to defend and promote the interests of a very narrow section of the economy," he told the National Press Club.

"The way in which I’ve watched some of these vested interests deploy their political power is in my view profoundly anti-democratic," Swan told a reporter in questions. "And what I don’t want to see is a change in influence lead to a change in income distribution and a lessening of mobility."

Swan has been sharpening his rhetoric recently. He has penned a long essay for The Monthly decrying the growing public influence of resource billionaires. "A handful of vested interests that have pocketed a disproportionate share of the nation’s economic success now feel they have a right to shape Australia’s future to satisfy their own self-interest," he writes.

Swan is worried about the impact of these vested interests on Australia’s future prosperity. He has noticed the soaring wealth of the lucky few, and he is concerned about what that might mean for Australia’s traditions of equity and egalitarianism.

It’s a bold move, and not before time. Swan’s essay — which most of his critics don’t seem to have bothered to read — is really about income inequality, and the perils of a shrinking middle class. In Australia, this debate has been largely absent, perhaps because here a rising tide really has lifted all boats. But in the northern hemisphere, particularly in the US, income inequality has accelerated so rapidly that the very rich have started to cannibalise the rest of the American economy.

While the super-rich have captured ever-growing shares of US wealth creation, median wages have stagnated. The top 1 per cent of US earners now capture their largest share of the whole since the 1930s, while median wages have actually declined to levels not since 1999.

Critics of Swan — at least those who have bothered to engage with his article, rather than simply accuse him of "class warfare" — point out that we haven’t seen the same increase in inequality that has occurred in the US. But that’s Swan’s point: he wants to preserve Australia’s hard-won gains in the face of global trends towards income inequality. And he sees the growing power of vested interests to influence the Australian public policy debate in their favour as a threat to that success.

Of course, as one journalist pointedly asked Swan at the Press Club yesterday, if he is so worried about these trends, why did he and his government roll over on the resource super profits tax back in 2010, allowing the mining industry to wipe billions from its future tax bill?

The original premise for the mining tax was advanced by former Treasury Secretary Ken Henry as a recommendation of the Henry Tax Review. The idea was to tax the above-trend profits of resource exploration and return those funds to the community through initiatives like raising superannuation and cutting company tax.

In return, mining companies would get a souped up depreciation allowance that would allow them to write forward exploration expenses for many years. State mining royalties would also be abolished, with the difference paid to the states by Canberra. In effect, the federal government was going to get into the business of co-investment in resources projects. It was aimed to be a far more economically efficient levy that would raise money, insulate mining companies from some of the high start-up costs of mining royalties, and remove the risk of arbitrary rises in state royalties from cash-strapped state governments.

As we know, the mining tax met with fierce resistance from a well-organised and funded industry campaign. The mining industry, no stranger to tough battles against unions and state governments, approached the coming fight with Canberra about increased taxation with considerable determination, aided by a media only too happy to parrot the dodgy figures and questionable arguments written by Mitchell Hooke and his PR flaks at the Minerals Council. The climax of the campaign was a now-notorious public protest in which Andrew Forrest and Gina Rinehart gave rabble-rousing speeches from the back of a truck to protestors gathered to express their desire to "axe the tax".

In contrast, the dying days of Kevin Rudd’s government were marked by lassitude and confusion. Little effort was made to explain to the general public the reasons why resources companies were being slugged. Nor did the government come up with an effective rejoinder to the widespread sentiment that the mining tax would "kill the golden goose". Indeed, as we now know, Labor was consumer by internal plots and machinations. Kevin Rudd’s prime ministership abruptly ended on the evening of 23 June 2010. His replacement, Julia Gillard, made cutting a deal on the mining tax her first priority.

The result was the "minerals resource rent tax", which narrowed the focus and ambition of the previous version of the mining tax. Gillard focused negotiations on only three big companies, BHP Billiton, Xstrata and Rio Tinto. It was an early taste of Gillard’s strengths as a prime minister. She banged heads together and extracted a deal. The tax take will now be considerably lower, and the resources covered considerably fewer. Notably, gold mining, currently undergoing a huge revival owing to sky-high gold prices, was left off the list. Even so, the new tax is expected to raise tens of billions less than original proposal. That’s an impressive return on the investment of a few million dollars of lobbying and advertising.

And that’s the problem with Wayne Swan’s attack on mining billionaires. When it comes to fighting for the rights of ordinary battlers and against the entrenched interests of corporate power, Swan has a rather mixed record.

Yes, Swan has increased the pension, means-tested private health insurance and lowered tax rates for Australia’s poorest. But this Labor government has also been a committed supporter of the "four pillars" policy that virtually mandates an Australian banking oligopoly. It has abandoned any efforts to crimp the power of the big two supermarkets. The government’s carbon policies still include plenty of subsidies for big emitters, including free permits for trade-exposed industries and billions to pay dirty coal plants to shut down. That’s billions going to vested interests every year.

When it comes to taxes for the super rich, the government could be doing far more — for instance, by adjusting some of the enormous perks built into superannuation tax rates by Peter Costello, or by attacking the notoriously opaque structure of family trusts. Indeed, if Swan really wants to tackle income inequality directly, he could move to support a current Greens proposal to raise the income tax rate to 50 per cent rate on taxable incomes above $1 million.

But if Swan is being just a little cute in his anti-billionaire crusade, the counter-attacks on the Treasurer’s speech and essay have been even more hypocritical. After all, given recent events, who can really question Swan’s main point that vested interests are attempting to skew public policy for private profit? The mining industry is a huge donor to the conservative political parties nationally, as well as to political pressure groups and lobbyists like the Minerals Council of Australia, and magnate Gina Rinehart has been buying into media companies.

Big mining companies can even take out ads attacking the government and then write them off as expenses against which they can reduce their tax. Andrew Forrest’s Fortescue, for instance, has taken out full-page ads in many newspapers disputing Swan’s claims. Meanwhile, Clive Palmer — a huge donor to the Queensland Liberal National Party — didn’t bother with any substantive arguments, and instead simply called Wayne Swan names. One suspects that, just at the moment, the government will be quite happy with a public spat against mining billionaires.

The Coalition, meanwhile, has been recycling its favourite line of attack, claiming that Swan is engaging in class warfare. That will be music to Swan’s ears. Sound-bites of Joe Hockey defending mining billionaires is probably just what Swan desires. Labor has clearly decided to start acting like a Labor government, at least for a little while.

So far at least, the populism has been working: the media is finally talking about a Labor talking point, rather than a Labor civil war. If the polls start to inch up, this newfound courage in its own convictions may just continue. But Labor should be careful what it wishes for: as the events of 2010 showed, once vested interests decide to take on an elected government in earnest, they can inflict plenty of damage. The worst outcome for income inequality of all is still staring Labor full in the face: a Coalition government.

Ben Eltham is New Matilda's National Affairs Correspondent.