In October 2006 Kevin Rudd published his now famous Brutopia essay in The Monthly magazine. One paragraph in particular stands out.
There is a danger that John Howard's form of political statecraft will become entrenched as the national political norm. The prime minister's now routine manipulation of the truth poses significant problems for the long-term integrity of our national institutions, including the great departments of state. As time goes by, all are in danger of becoming complicit in protecting the political interests of the government rather than advancing the national interest of the country. There must be a new premium attached to truth in public life. That is why change must occur.
The unkind will suggest that Rudd has become a Howard ''mini-me'' because that warning is even more appropriate now than it was nearly four years ago.
The Rudd government faces an economic quandary. It has squandered the national treasure in an orgy of reckless spending -- ostensibly to stave off recession. The wastefulness of that spending is now becoming apparent as each house-fire begs the question as to involvement in the Home Insulation Scheme and every school parent can see how little value for money the Building the Education Revolution delivered, while kids still wait for their computers. Rudd needs money fast to bring the budget into surplus and has been sold on the Resource Super Profit Tax (RSPT) as the solution to his problems.
The problem for the Rudd government, however, is that there are no free lunches. But as they desperately want to believe in free lunches they didn't ask any of the tough questions that needed asking. Wayne Swan admitted to Four Corners that he had read the Henry Review at the beach.
I spent a lot of time at the beach at Maroochydore reading the report of the independent review which Dr Henry chaired ...
What I saw in Henry was compelling evidence that we had not been receiving a fair return for our mineral resources. The figures there are compelling.
Swan would have seen two pieces of evidence supporting the argument that ''we had not been receiving a fair return for our mineral resources''. The first piece of evidence related to an American academic working paper that appeared to show that mining companies in Australia only paid 17 per cent in tax. The Treasury officials who had inserted that ''evidence'' into the Henry Review and subsequently into government policy didn't understand what they had been looking at. This was made clear by the authors of the working paper.
The purpose of our paper is not to study specific industries in specific countries. Nor is it to precisely calculate rates of tax that are paid. Our paper is intended as a broad comparison of effective tax rates across countries. All numbers in the tables in the paper are appropriately interpreted on a relative -- rather than absolute -- basis.
So Treasury officials didn't understand a working paper written by a US PhD student and his professor. These things happen; but that nobody thought to ask the Australian Tax Office how much tax mining companies paid is simply astonishing. Perhaps Swan didn't have his mobile phone at the beach.
The second piece of evidence goes beyond not understanding econometric analysis. Here the Henry Review presented a graph showing that ''Total mineral tax and royalties as a share of mineral profits'' had fallen since 2001 while ''Mineral profits'' had risen. This graph, however, did not include corporate income tax as part of the ''total'' when calculating mineral taxation. In other words, it was highly deceptive and designed to mislead. Furthermore the term ''Mineral profits'' is a Treasury construct that nobody has been able to understand or replicate. One would imagine that definitions consistent with ATO definitions and the Tax Act would be appropriate when debating taxation issues, yet the Henry Review felt no such constraint on its deliberations.
The bottom line is that there is no evidence that ''we had not been receiving a fair return for our mineral resources'' as Swan claims he had discovered while reading the Henry Review at the beach.
This leaves Treasury in a rather awkward position. They have designed an ''elegant'' tax system that is predicated on their own lack of understanding of existing empirical research out of the US and on a very dodgy graph that leaves out the corporate income tax. They won't, or can't, release their calculations for so-called ''minerals profits'' and anyone can access the ATO website to work out how much tax the mining industry (and any other industry) pays each year.
Right now we have the Treasury and the government relying on each other for credibility. The basis for the RSPT is a lack of understanding about econometric results -- something Treasury should be good at -- and a dodgy graph. This isn't the only dodgy graph doing the rounds right now. The quality of economic advice coming out of Treasury right now is poor. Sloppy mistakes are being made. What is extremely troubling is that the government doesn't seem to have noticed.
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