Labor optimists think the tax issue may be splitting about 50-50 outside Western Australia and Queensland. Yet a double secession is not envisaged, so the west and Queensland will still be voting at the coming election and Labor will lose both states on an unamended resource super-profits tax.
Rudd seems to be trapped. He cannot sustain the war yet he cannot tolerate being seen to lose his nerve and admit he has blundered. With each day this becomes a greater test of Rudd’s authority and judgment. The intensity of the conflict penetrates to the heart of the Prime Minister’s standing.
Rudd’s tactic this week was to split the industry and to appear consultative in his dealings with the miners. The PM has moved into talks with individual companies. The message is that some of these talks are proceeding better than others. In Perth on Thursday, Rudd met Fortescue Metals Group chief Andrew Forrest, with whom he has enjoyed strong personal ties in the past.
The aim of this meeting is now clear: it signalled a powerful effort by Rudd to persuade Forrest to break ranks and to enter into his own negotiation with the government. Rudd is desperate to shatter the industry’s unity.
After the meeting Forrest sounded conciliatory, saying he was “grateful” to Rudd for the exchange, that he had no “axe to grind” with the PM and that he felt Rudd understood the industry’s issues.
But when Forrest realised the spin being placed on the meeting and his words, he issued a clarification that night: “To be very clear, the Prime Minister and I have nothing to discuss, nor anything to negotiate while this tax stands”. This form of words is critical. It is Forrest rejecting Rudd’s tactic and standing firm.
Earlier Forrest had told this newspaper: “Everyone’s superannuation, projects and plans are being hurt on a daily basis until this issue is resolved.
“There comes a crossing point where investors overseas will ask: “Can I do without Australia?’ We are near to that point.”
This followed Rudd’s meeting on Tuesday with BHP Billiton chief Marius Kloppers, who was invited to Sydney for talks with the Prime Minister. This “secret” meeting was leaked to the media by Labor. It created the impression of a PM keen to consult.
However, BHP Billiton concluded it was not a meaningful dialogue. The company got nothing from this process.
A rational person would reach only one conclusion: the meeting was a public relations stunt. This is the conclusion many people have drawn.
By week’s end Kloppers had told the Fairfax media he could see no end to the dispute. Indeed, the company thinks Rudd Labor is in full denial of its objections: that changing tax rules on income from existing investments creates sovereign risk and the tax regime will compromise future projects.
BHP Billiton chairman Jac Nasser has told shareholders “there has been no acknowledgment by the government of the major flaws of the proposed tax”. For Kloppers and Nasser, the real point is that Rudd refuses to concede the problems with his policy.
Forget any deal; it is not on any horizon. The signals from BHP Billiton permit only one conclusion: that in five weeks since the tax was announced, real progress towards bridging the divisions amounts to zero.
A spokesman for Rio Tinto said yesterday: “Prior to the government’s announcement there were no negotiations on the proposed mining tax. There have been no negotiations since the announcement. There are no negotiations being undertaken now. We want to work with the government on this to ensure we get it right.”
Get the picture? For Rudd Labor, how smart is this? Comments from Forrest, Kloppers and Rio Tinto confirm that so-called progress is cosmetic. The newspaper advertisement BHP ran yesterday said: “We are still waiting for genuine consultation.” Rudd’s bottom line remains to avoid any substantial concession. This is a Prime Minister playing tough. But does he have a strategy? Rudd’s intentions this week were to sell his policy, hold firm, engage in talks and seek to divide and rule.
However, it is only a matter of time before Labor’s internal divisions become more apparent. Resources Minister Martin Ferguson is trying to find the basis for a compromise. But Rudd will not utter the word. His line has not changed in five weeks: the government wants to consult, its 40 per cent rate is “about right” and the talks are about detail, implementation and transition.
The PM’s underlying theme is that the government will prevail.
“Can I say this is a tough, hard negotiation with some of the hardest, toughest mining companies in the world,” he said yesterday. Yet the companies deny any negotiations. Their frustration with Rudd only mounts.
Ultimately, political cosmetics will not prevail. Rudd will be judged by policy substance and any concessions he makes.
The industry objects to various floated solutions: adopting the petroleum resource rent tax model, dumping the 40 per cent underwriting of losses, and lifting the threshold at which the profits tax applies. At week’s end the miners seemed more united. Having been shocked at the way the government announced the tax, they are now shocked at the way the government is conducting its so-called dialogue.
Visiting Perth, Rudd was keen to knock the west’s notion that “we’re not getting our fair share”. He said the $5.6 billion infrastructure fund unveiled at the time of the RSPT would be increased by $400 million and that Western Australia would win more than $2bn in investment from the fund. “That means more rail, roads, ports and other critical infrastructure,” he said. Before leaving Perth, Rudd was attacking Barnett and Tony Abbott. How would they fund the west’s needs, Rudd asked, adding: “I’m very serious about that challenge.”
With his support collapsing in the west, Rudd has belatedly given himself an argument. Yet this is about the distribution of the tax, not the merit of the tax.
He made the same case in Queensland, announcing yesterday it would also win more than $2bn from the infrastructure fund.
Yet the polls in these states suggest the horse has bolted.
Rudd’s problems in the west are compounded by the Canberra-Perth deadlock over the hospitals agreement in April. Premier Barnett will not agree to hand over his GST revenue to the national government.
The Rudd government’s message is that an extra $350m for the west depends on agreement being reached. The politics are clear: any financial penalty Labor imposes on the West Australian health system will rebound massively on Rudd.
Meanwhile there is no denying the lessons from the mining tax debacle. Until this is settled, Rudd cannot control the political agenda; he cannot make Abbott the issue; he cannot highlight Labor’s strengths.
And until it is settled, the doubts will intensify about Rudd’s judgment and strategy.