Memo to Sir Kevin: a brave decision, Prime Minister

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The government could not have reasonably been asked to rule anything in or out until it had had an opportunity to absorb the report and the debate that followed. But frightened of anything like a public debate on the merits of tax reform, the government sat on the report for five months, made it public a week before the budget and – by adopting only a handful of recommendations and rejecting or ignoring the rest – it in effect rendered the review irrelevant.

All the attention and debate is focused on what the government proposes to do, the central element of which is a huge new tax on the mining industry. Even this is carefully calibrated to avoid too much offence, as 80 per cent of it will be paid by two companies, BHP Billiton and Rio Tinto, which Rudd has pointed out are substantially owned by foreigners.

So Henry had every reason to look glum as his political masters made public their response , which picked up two or three of his 138 recommendations, and layered on top unrelated initiatives he did not recommend and in several cases probably opposes.

Even the name of the tax is Orwellian. Rudd has called it a “super profits tax”. One would reasonably assume they were profits way above a reasonable rate of return. But Rudd’s definition seems to be any revenue above investment plus the 10-year government bond rate – now 5.7 per cent.

Given the enormous risk inherent in any resource project, nobody would regard 5.7 per cent as satisfactory. Describing as a ”super profit” any return higher than the risk-free rate paid by the Commonwealth on its bonds is an abuse of language.

Thanks to Rudd’s timidity, a lot of good work in the review will struggle to get an airing. A tax-free threshold of $25,000 and a flat rate of 35 per cent on income up to $180,000, rising to 45 per cent thereafter, would dramatically simplify the personal income tax system. But nobody is talking about it.

Another recommendation was to allow tax losses to be carried backwards and be offset against an earlier year’s profits, entitling a taxpayer to a refund. This was proposed by the Coalition a year ago and has many international precedents. But it too has fallen by the wayside.

It is surely remarkable that the Rudd who wanted “a thousand flowers to bloom” at his 2020 summit now seeks to constrain and control debate on this vital area of reform to the narrowest possible political agenda.

His abandoning the emissions trading scheme is also political cowardice. After all, he described climate change as the “greatest moral challenge of our times” and the scheme was the centrepiece of his response to it. Yet faced with Senate opposition, he is unwilling to take the scheme to a double dissolution. He points to the Coalition opposition to it, but Labor’s opposition to the GST did not deter John Howard and Peter Costello from campaigning for a tax reform that was much harder to sell than emissions trading.

The scheme had relatively high levels of support in recent times and was supported by the Coalition at least in principle until late last year. Further, its objective is to reduce greenhouse gas emissions, a goal that still commands majority support even if there is debate about the means.

This streak of cowardice may gratify Sir Humphrey, but it will count against Rudd, even among those who despise the idea of an emissions trading scheme and have no interest in Henry’s thoughts on tax reform.

Political leaders need to have guts. They are respected for standing up for what they believe in, even by those who do not agree with them. If a prime minister cannot stand up for his own answer to the greatest moral challenge of our times, what on earth would he stand up for?

Is it any wonder the immediate result of his cowardice has been a collapse in his personal support and, for the first time in nearly four years, a Newspoll shows the Coalition in the lead.

Malcolm Turnbull is the Liberal member for Wentworth.