Superannuation and Dividend Imputation the Key for Delivering in the May Budget

above:  Gonski is crucial for moving closer towards educational equal opportunity

If Labor wants to win in September it needs bold new initiatives – without ‘robbing Peter to Pay Paul’.  Reforming superannuation concessions and dividend imputation may provide Labor with the ‘warchest’ it needs to ‘break through;’ to disengaged voters.   Labor also needs to deliver in the immediate term as well – as voters may be sceptical of commitments only for the ‘distant future’.

 Tristan Ewins,  March 2013

As the May Federal Budget approaches and Liberal state governments increasingly move to sabotage the Federal Government’s Gonski proposals purely for political purposes – it seems increasingly likely that if Gonski is to succeed the Federal Government must ‘pick up the entire tab’.  The National Disability Insurance Scheme (NDIS) will also involve a heavy cost, and Labor simply cannot deliver without progressive reform on the revenue side.   More unpopular austerity – as in the case of Sole Parents – which saw disgust and cynicism amongst parts of the electorate – is not a viable option. And in any case it simply should not be part of the Labor ethos –‘to take from Peter to pay Paul’ – seeking to spin these matters to create only an illusion of overall progress.

Mark Kenny, writing for the Sydney Morning Herald explains how resort to superannuation investment has become a prime means of tax avoidance for high income groups.. Hence:

“High-income earners simply have greater scope to save and thus evade the 46.5 per cent marginal tax rate on income by sending it into super. The result is that what is saved on the aged pension budget through self-funded retirement winds up being less than what the superannuation policy costs in tax revenue foregone.”

(Read more: http://www.smh.com.au/opinion/politics/for-richer-or-poorer-class-warfare-opens-on-a-new-front-20130208-2e3jp.html#ixzz2MMN0j7MX)

Richard Denniss of the Australia Institute has been one of the most determined critics of the existing system of superannuation concessions. In August last year he put the argument that while those concessions cost the public $30 billion in late 2012, they will cost $45 billion as early as 2015.  This is well in excess of the entire Aged Pension budget – which was only $25 billion in 2012.  And in 2012 $10 billion of these superannuation concessions were going only to the top 5 per cent income demographic.    Denniss has argued:  “We estimate, for high income earners, up to 60 per cent of their lump sum is actually the contribution of the taxpayer.”    http://www.abc.net.au/worldtoday/content/2012/s3568235.htm

The ACTU, meanwhile, has urged the Government to target the top 10 per cent income demographic.  And were superannuation concessions revoked for that top 10 per cent group, at an estimate it could bring in over $15 billion -  enough for the government to fund Gonski and the NDIS without having to depend upon the Conservative states.  (nb: though NDIS will cost more over the years as the full program is phased in)   http://www.theaustralian.com.au/national-affairs/treasury/wealthy-in-wayne-swans-sights-on-superannuation/story-fn59nsif-1226572182403

Yet even as Tony Abbott and the Liberal Party condemn Labor for considering revoking concessions for some of the most privileged, they are committed to withdrawing superannuation tax breaks for low paid workers. Bill Shorten has pointed out that the restoration of a 15 per cent tax rate on these Australian workers will affect 3.7 million people, including 2.1 million women.  It could cost these workers $500 a year: which is not inconsiderable for those on low incomes.  This is blatant hypocrisy from Abbott.

See:http://ministers.treasury.gov.au/DisplayDocs.aspx?doc=pressreleases/2013/002.htm&pageID=003&min=brs&Year=&DocType

So what should Labor do?  Gonski and NDIS are potentially landmark reforms which appeal strongly to Labor’s base. Withdrawing superannuation concessions from the top 10% income demographic would make these policies affordable regardless of the Liberal states’ spoiler tactics.  And withdrawing Labor’s unjust policies on Sole Parent payments could moderate the backlash from this callous and self-destructive decision.

But arguably Labor needs a more robust electoral war chest in order to ‘break through’ to a cynical electorate which has already ‘turned off’ in parts of the country. 

Another area of potential reform is Dividend Imputation  - which the Henry Tax Review considered axing a few years ago.  Dividend Imputation seeks to eliminate so-called “double taxation” of investments by providing credits on dividends.  This is fine for small investors – but should the wealthy be receiving a massive tax break as a consequence?   Especially when the Company Tax rate has been cut again and again for decades. 

Writing for ‘The Age’ Nicholas Gruen pointed out late in 2012 that the Dividend Imputation system costs the government in excess of $20 billion a year!  That being the case he went so far as to suggest getting rid of the entire system; demonstrating that the benefits of the system in spurring additional investment are minimal anyway. A spare $20 billion annually – on top of rescission of superannuation concessions for the wealthy – invested in health, education, aged care, welfare, infrastructure, and foreign aid – could work wonders!  It could also help Labor balance the budget over the course of the economic cycle without further callous austerity.  (indeed, quite the opposite!)  http://www.smh.com.au/business/dividend-imputation--20bn-for-the-taking-20120917-262h2.html

Even were the dividend imputation rate only incrementally reduced, an initial reversion to a 75 per cent imputation credit could bring in over another $5 billion; and a 50 per cent rate – argued for in the early 1990s by economist, John Quiggin, could bring in over an additional $10 billion.  

Finally,  the Greens have argued for lifting the Minerals Resource Rent Tax (MRRT) rate to 40 per cent, eliminating loopholes and removing “generous accelerate depreciation provisions.”   This, they argued, could raise $26 billion our four years.   http://www.theaustralian.com.au/news/breaking-news/greens-disappointed-with-mrrt-result/story-fn3dxiwe-1226573649144

‘Doing the math’ this would translate into an additional $6.5 billion a year on average.  

Nonetheless it is quite possible that Labor has ‘done a deal’ with the miners. If so it is a fundamental matter of democracy that this ought be made known to the public. The alternative is the kind of ‘Iron Law of Oligarchy’ referred to by political scientist, Robert Michels – whereby political and economic elites determine agreements ‘behind the scenes’ – cutting ordinary citizens out of the equation.  (the anathema of democracy) Yet at the same time trust is an extremely valuable thing in politics – and even if Labor has made the wrong call on any deal, it would be understandable were they to remain true to that commitment. 

The Greens are thinking of ‘holding Labor over a barrel’ over the MRRT. And ideally the tax does need to revert to its original form as intended by the Henry Tax Review.  But if this is politically impossible the Greens must co-operate with a Labor Government that makes big progressive social initiatives possible through thorough-going reform of superannuation concessions and dividend imputation.

To put all this in perspective the Australian economy today is valued at approximately $1.4 Trillion. The Gonski package – crucial for the very viability of our state school system into the future – and to the opportunities of hundreds of thousands of students - will cost about $6.5 billion a year to implement.  And the NDIS – crucial to some of our most vulnerable Australians and their families - is assumed to being going to cost at least $15 billion a year when ‘fully operational’ in 2018.  (but only phased in gradually)

See: http://www.probonoaustralia.com.au/news/2012/11/campaign-rejects-ndis-cost-%E2%80%98scaremongering%E2%80%99#

But what else can Labor do to ‘break through’ ahead of September; with the May Budget perhaps being its last opportunity to bed down such major initiatives?

For a long time this author has argued for reform of Aged Care.  It is an issue that effects many of us. Even the younger among us will have family who may need care in the future.

The unnecessary acuteness of suffering experienced by many aged Australians is a matter of national shame.

For those needing low-intensity care there must be high quality, affordable options available.  The  2012-13 Aged Care Reforms proclaimed the end of  'Living Longer. Living Better.'  This must include those with low care needs as well as those needing high level care.

Residents in high intensity care need privacy – they need their own rooms if they so desire.  They need heating and air-conditioning, dental care, facilitated interaction, quality food, and ‘changes of scenery’ - perhaps including access to gardens.  In the future some of those who remain alert and in need of mental stimulation could do with access to information technology.   There are also problems with staff to patient ratios, including a need for more registered nurses.

More generally there is a need for more robust career paths for aged care workers; with better training being complemented with better wages and conditions.  This will also improve the quality of care experienced by aged residents.

For those older Australians wanting to stay at home – and well enough to do so –  there is a also need for regular interaction to ward away the loneliness from which so many suffer. And Families and Carers also need additional support in order to make home care viable.  Staying at home is only an option for many with significant support, and the Combined Pensioners and Superannuants Association has long argued support services here are under-funded.

A minimum additional annual $5 billion devoted to Aged Care would be a start (though certainly not the ‘final word’) in working towards these ends; while also beginning a phase-out of user pays mechanisms that hit average and working class families. Working class and middle income Australians should not be forced to sell their family homes (using the equity in the home - even incrementally,) with an effective regressive ‘flat tax’ in order to secure care for their loved ones.  All the more so while there are massive tax breaks for quite wealthy Australians that go into the tens of billions

The NDIS will care for some of our most vulnerable – but not all of them.  Care for the Aged is just as crucial.

In order to ‘break through’ to cynical Australians who have ‘switched off’ from Labor, the government needs big initiatives that capture the public’s imagination. The government needs to mobilise the welfare sector, labour movement and other social movements behind it with a raft of measures unprecedented in our time.  Yet another dilemma is how to find ways of actually delivering to the public between now and September in such a way as to avoid cynicism about ‘distant’ promises. 

By withdrawing superannuation concessions for the wealthy and reducing dividend imputation Federal Labor can amass a very substantial war chest.

One thing is clear.  Without substantial reforms bringing in the revenue for the coming May Federal Budget Labor will be left with very limited options.  ‘Business as usual’ will not win Labor the election.

The Policy of the Combined Pensioners and Superannuants Association can be found via the URL below;  They generally lead the way in campaigning for the rights of aged Australians, including those in need of care:

http://www.cpsa.org.au/index.php?option=com_content&view=article&id=41&Itemid=82

Labor and the Greens on the Carbon Tax debate

above: Less tumultuous times for PM Julia Gillard and Greens leader Bob Brown

The following article evaluates the debate on Carbon Tax reform in Australia, but also divisons between the Greens and ALP government on Company Tax and with the Minerals Resource Rent Tax (MRRT).  Starting with a preference for distributive justice and social wage expansion, the author - Tristan Ewins - tries to chart some kind of way forward for the Gillard government and its allies.
..

Debate on Company Tax cuts is beginning to gain momentum in Canberra with Gillard Labor, independents and the Greens at odds over what comprises the best policy. That debate is more broadly framed in the context of the Minerals Resource Rent Tax (MRRT), and a declared intent by Labor to direct new revenue into corporate tax cuts and infrastructure (especially in the ‘mining states’ of WA and Queensland), and in the process to provide room for an increase in superannuation contributions by business.

Therefore it’s probably best to explain the background of the MRRT before going into the debates that hinge on the treatment of revenue thus gained - and how all this relates to the other crucial debate on Carbon Tax reform.

During the 2010 debate David Richardson – writing for On Line Opinion – explained that the real effective rate paid by the miners in 2010 was 19 per cent, as opposed to 24 per cent for the corporate sector more broadly. To correct this the originally-proposed tax on ‘super profits’ aimed to affect profits above the government bond rate – then at 5.8 per cent. http://www.onlineopinion.com.au/view.asp?article=10469

The aim was to garner a fair share of profits from the sector for ordinary Australians who collectively own the non-renewable resources which the mining companies profit from.

But elements of the mining industry spent an estimated $22 million on advertisements undermining Rudd Labor in an effort that effectively brought down a Prime Minister. Mining concerns would have remained viable and profitable. But the scare campaign: threatening disinvestment and job losses – found its mark.

While the original tax was to be levied at 40 per cent, the heavily diluted version negotiated by Gillard will apply at 30 per cent on profits over the long-term government bond rate plus 7 per cent. http://www.abc.net.au/news/stories/2011/03/29/3176405.htm

Allowances and concessions will see an “effective statutory tax rate [of] 22.5%.” http://en.wikipedia.org/wiki/Mineral_Resource_Rent_Tax

And the newer version will also only apply to coal and iron ore, excluding other minerals including gold, nickel and uranium.

The original Resource Super Profits Tax would have raised approximately $12 billion over its first two years. http://www.theaustralian.com.au/national-affairs/greens-join-mining-tax-deal-revolt/story-fn59niix-1226027728392

But the revised Minerals Resource Rent Tax will see a significant reduction in revenue compared to the original proposal.

To be more specific: In 2010 Gillard Labor estimated the compromise would cost $1.5 billion less over the first two years than under the original package. http://www.news.com.au/business/the-great-mining-tax-battle-at-a-glance/story-e6frfm1i-1225888848317

But Treasury estimates suppose a gap in the vicinity of $60 billion over ten years; with some others projecting that the shortfall could be closer to $100 billion. http://www.perthnow.com.au/business/minerals-resource-rent-tax-to-regain-spotlight/story-e6frg2r3-1226025450249

It is in this context that Labor has downgraded its original promises to cut Company Tax. Instead of cutting the rate from 30% to 28%, now the government is proposing a cut of only one per cent. (ie: to a rate of 29%)

However Greens leader Bob Brown has argued that even a cut of one per cent would return half of new revenue taken back to the miners. Instead Brown is proposing a ‘two-tiered’ approach to Company Tax which would see only companies enjoying profits of less than $250 million enjoying the tax discount. This would hit ‘the big end of town’: including the major banks and mining giants – while sparing small business. For Brown the money thus saved would be better spent improving wages and conditions for aged care workers, funding national dental health care, or increasing Newstart, the youth allowance, Austudy and Abstudy," http://www.abc.net.au/news/stories/2011/03/29/3176405.htm

As against claims lower Company Tax is needed to allow for greater competitiveness, research commissioned by the Greens shows that the current rate of 30 per cent is still very significantly below the OECD “weighted average” of 36 per cent. The same research estimates a 1 per cent cut would cost $18 billion by 2021. http://au.news.yahoo.com/thewest/business/a/-/national/9091822/greens-want-to-restrict-company-tax-cut-to-small-business/

Such a pool of money could also be critical for infrastructure, education, and mental health and aged care services. http://www.businessday.com.au/business/mining-tax-tax-cuts-are-linked--swan-20110329-1ce3v.html

But there are potential issues for Labor in drifting away further from the platform it took on these issues to the 2010 Federal election.

To begin: it is important for Labor to honour any agreements in order to retain credibility as a partner for negotiation into the future. This means that if Labor has any kind of ‘agreement’ it is a practical necessity at least that the government ought enter into fresh negotiations if seeking to change its position on resource taxation during the current term. Either that or take such action as to make the consequences ‘neutral’ for those concerned. This could boil down to a choice between either increases in corporate superannuation contributions for low income workers, or abandoning the Company Tax cut, diverting the proceeds to other crucial priorities as Brown suggests.

Further: if the government goes down the path of increasing superannuation contributions for low income earners it would be best to also ease Aged Pension means tests for such groups to enhance any real effective gain.

It is equally compelling as a matter of public interest, however, that the electorate be made aware of the scope of any agreement Gillard made with the big miners, including BHP and Rio Tinto, and corporate Australia more broadly, in the run up to the 2010 poll. Negotiations with the most powerful corporate interests ‘behind closed doors’ is anathema to democracy.

Unfortunately, the political power of the miners, and the corporate sector more broadly, is not going to disappear any time soon, no matter how it skews democratic processes, overshadowing the voices of ordinary citizens. So maintaining credibility in negotiations with those interests is crucial no matter how problematic their power may be.

However it is also most definitely legitimate for Labor to seek a fresh mandate at the next Federal election to effectively increase and widen the scope of the Minerals Resource Rent Tax; and to start canvassing support for any such move now. Given the past defeat, though, Labor would need to adopt a cautious approach.

Yet there could be a difficulty with such a move as well if not handled properly. Labor might not want to ‘muddy the waters’ by pursuing too many distinct major debates on tax reform at once for fear of leaving some voters overwhelmed.

Climate Minister Greg Combet is anticipating a “long debate” suggesting any Carbon Tax will not be implemented until July 2012. http://au.news.yahoo.com/a/-/latest/9001318/carbon-tax-will-be-a-long-debate-combet/

In that context a ‘tax summit’ (Wayne Swan prefers the word ‘forum’) is planned for October this year. http://www.theage.com.au/national/key-tax-plans-before-summit-20110320-1c2bm.html

But without putting public fears to rest – as early implementation could achieve – the debate may become a ‘running sore’ distracting from any further reform agenda.

If the Gillard government could resolve the shape of Carbon Tax reform and see the tax implemented late this year (2011), though, fear and scepticism could be put to rest well before the next election. Crucially: this could provide the necessary time and ‘breathing room’ to pursue a debate on further significant progressive tax reform.

Taking that into consideration, the tax ‘summit’ or ‘forum’ could do to be brought forward somewhat – perhaps by a couple of months.

Openness to future reform is also crucial given the scenario of profit levels in the industry waning somewhat - to the point where the government will need to consider additional changes simply to maintain revenue, and fair returns on the natural resources that belong properly to all Australians.

All this considered, what is the best move for Labor in pursuing social justice objectives, while fostering co-operation with its independent and Green partners?

The key could be in the implementation of any Carbon Tax.

In 2010 the Greens were proposing a Carbon Tax of $24/Tonne, including assistance to ‘trade exposed’ industries. http://www.greenleft.org.au/node/43138

Without some form of assistance exports and import-competing jobs might simply be lost overseas without any real reduction in emissions.

Professor Ross Garnaut, meanwhile (responsible for the Rudd Labor ‘Climate Change Review’), has argued for a tax somewhere in the range of $20-$30 a tonne. http://www.smh.com.au/opinion/politics/garnauts-carbon-tax-plan-can-kill-two-big-reforms-in-one-hit-20110317-1by5o.html?comments=148

Garnaut has furthermore estimated that a carbon tax at a rate of $26/tonne would bring in $11.5 billion in the first year alone. http://au.news.yahoo.com/thewest/a/-/breaking/9032850/garnaut-ties-income-tax-cuts-to-carbon-tax/

Assuming these levels of revenue, it is the structure of compensation that is crucial: and which provides opportunities for fairer wealth distribution.

Firstly, compensation should take the form of direct payments for low and middle income groups, and increases in welfare – including the Aged Pension, Disability Support Pension, Austudy and Newstart. Income tax cuts, by comparison, are a clumsy instrument which would compensate high income groups who do not need the assistance.

Secondly: Compensation should exclude the top 30%-35% income demographic to provide sufficient scope to increase welfare and significantly improve the final financial position of low and middle income groups and individuals.

Thirdly: In this context - by returning all such revenue gained via a carbon tax taxpayers in the form of cash payments to low and middle income groups, including welfare recipients, Labor could actually expand and consolidate its electoral support base. This could very effectively undercut Abbott’s appeal to ‘battlers’ on ‘cost-of-living’ issues.

Fourth: A carbon tax rate at what Labor considers ‘the upper end’ of the scale (including the Garnaut proposal) could actually provide greater scope to assist low and middle income groups via compensation and effective redistribution. Hence it makes electoral sense in shoring up Labor’s support base.

Finally:  The only real problem in this scheme of things is that of what happens when the transition to a lower-emissions economy is actually achieved.  The problem being that at this point carbon tax or ETS revenue may 'dry up'.  For the long term, therefore, an alternative funding mechanism will be necessary to compensate low and middle income groups.  Hopefully, though, innovation in the renewable energy sector will also drive down cost structures.  Solar Paint, developed in Australia, looks particularly promising. See: http://www.abc.net.au/tv/newinventors/txt/s3008638.htm   and also: http://www.greenlivingpedia.org/Solar_paint

As for right-wing commentators such as Miranda Devine who seem to think distributive justice measures via tax comprise some malign ‘social engineering’: do they suppose the same is true in the case of most tax 'reforms' – including the gradual ‘flattening’ of income tax – which historically have redistributed wealth from low and middle income groups to the wealthy? The double-standards are palpable.

This leaves us with the concerns of Bob Brown and the Greens more broadly that emphasis on Company Tax cuts will leave crucial areas of the welfare state and social wage under-funded and exposed. While Labor cannot be seen to be simply ‘dancing to the Greens’ tune’, minority government necessarily involves compromise. And indeed, given their significant electoral support base, the positions of the Greens ought be considered seriously regardless.

As already alluded to – early implementation of a carbon tax could provide ‘breathing room’ for further debate and further reform before the next election.

In 2009 ‘Lateral Economics’ informed the Henry Tax review that ‘axing’ dividend imputation could save the Federal government $20 billion a year. http://www.businessday.com.au/business/dividend-imputation-wont-be-cut-says-henry-20090821-etwn.html

Dividend imputation is meant to stop so-called ‘double taxation’ of profits: providing credits to shareholders to compenstate for Company Tax already paid.  This was supposed to provide an incentive for investment. But the reform – first implemented under Keating Labor – provided a windfall for the most wealthy Australians, with a massive cost to the budget bottom line, and less money for crucial social programs and infrastructure.

Without fully removing the measure, shifting to half dividend imputation – as once suggested by progressive economist John Quiggin - would be a substantial equity measure, and provide over $10 billion/year much of which could be directed to crucial social programs in aged care, mental health and education, and for social housing and infrastructure.

Such reform would mainly hit millionaires who own so much invested wealth in this country: but small investors may resent the change as well. The benefit from social investment would need to be clear before the next Federal election. And while a means test could provide fairness to small investors, using some of the money to further improve the Aged Pension could be a smart move in the context of ‘winning over' such people as well.

Furthermore: to maintain investment in the Australian economy in that context, some of the money could be diverted to a public pension fund. (to be invested locally) Not only could this support ongoing job creation: it could also sustain the Aged Pension in the context of an ageing population.

A compromise between the Greens, independents and Labor – with early implementation of a Carbon Tax, and a trade-off for half-dividend imputation in return for agreement on Company Tax – could be in the interests of Labor’s core constituency. Appealing to the material interests of most voters, it would also consolidate Labor’s electoral support base, while being well in keeping with Labor ideals.

Tristan Ewins is a freelance writer and grassroots Labor activist based in Melbourne, Australia. He maintains and publishes the 'Left Focus' blog

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Why Gillard could lose: It's an ‘economic rent’ election

above: the author Gavin Putland

Guest post by Gavin R. Putland of Prosper Australia. 


Prosper Australia is a self funded NGO (non government organisation), inspired by the economic justice that can be achieved by distributing the wealth produced from land amongst the entire community.

See: http://www.prosper.org.au/

nb: pls also check out our earlier articles relevant to the Australian Federal Election;

Click 'Left Focus' at the top of the page; and scroll down for analysis on the election, and the policy issues at stake!

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In this article - on the eve of the 2010 Australian Federal Election Gavin Putland argues that if Julia Gillard loses that election it could be as the consequence of Labor 'taking on' powerful economic interests.  Here's hoping that isn't that case!! - but this account of the influence of economic rent in Australia is well worth reading.


Charles Richardson (Crikey, Aug.17, item 15) offers three rules on federal elections. The second rule, which held in the last six out of nine cases, is that first-term governments are re-elected (albeit with a reduced majority, according to the first rule). The third rule, which held in the last 12 out of 13 cases, is that close elections are won by incumbent governments.

These rules point to a Gillard victory on Saturday. So does Malcolm Mackerras's whimsical law of electoral history, which has held in two out of two cases to date, and which states: “Winter elections are always called by Labor Prime Ministers who are always rewarded by the vote of the people on polling day.”

However, a Gillard victory August 21 would defy a much older rule, which says roughly: “Those who upset the tables of the money-changers get crucified.” In terms of Australian electoral history, the precise statement is:

Of the major parties, only Labor has been courageous/foolhardy enough to contest federal elections on a platform of increased taxation of economic rent. In three out of eleven cases, it has lost.

So what is economic rent? Let's begin with the most general definition, which also happens to be the most relevant to the present election campaign, and then look at special cases that figured in past campaigns.

What accountants call “profit” includes the necessary return on capital (“normal” profit), without which an industry will not attract investment. Competition tends to reduce the return on capital to the normal level.

Sustained super-normal returns therefore indicate some sort of protection from competition; for example, the exploitation of land, petroleum, coal or iron ore enjoys such protection because the supply of the resource — at least for any given quality and accessibility — is limited. The benefit of that protection is economic rent. So normal profit is a cost of production, while economic rent is the surplus after all costs, including wages and normal profit, have been paid.

Hence a tax on economic rent, unlike a tax on wages or normal profit, is not a cost of production, but merely cuts into the margin by which the protected price exceeds the necessary cost. If the tax is implemented so as not to reduce the expected rate of return below the normal rate (where “expected” is meant in the statistical sense), it does not deter investment.

A profit-based resource-rent tax (RRT) estimates the economic rent of a natural resource as the margin by which accounting profit exceeds normal profit. To minimize the impact on the expected rate of return, and hence on the incentive to invest, the tax on super-normal profit must be offset by a tax credit for sub-normal profit.

Under the aborted “resource super profits tax” (RSPT), unused credits were to be refundable with interest at the 10-year federal bond rate, which was assumed to be the price of the risk that Parliament would repeal refundability of existing unused credits. On that heroic assumption, the same bond rate was to be the allowance for normal profit, because a more generous allowance would amount to a minimum-risk return above the minimum-risk interest rate.

Whereas the RSPT made insufficient allowance for normal profit, the existing company tax makes no such allowance at all. Therefore, had the mining companies been concerned about maintaining Australia's ability to attract investment in mining, and not about defending their economic rents, they would have campaigned against the existing company tax, not the RSPT.

Under the existing petroleum resource rent tax (PRRT), which has the same 40% rate as the RSPT, unused credits are not refundable, but are carried forward at a more generous interest rate after a correspondingly more generous (and more realistic) allowance for normal profit. So the obvious answer to complaints about the RSPT was to turn it into a clone of the PRRT. There was no need to reduce the 40% rate. That the mining companies focused so heavily on the rate is further evidence that they were more jealous of their economic rents than of their necessary profits.

Gillard's “minerals resource rent tax” (MRRT), with its effective rate of 22.5%, is a partial sell-out to the rent-takers. But by comparison with the status quo, it is an increase in taxation of economic rent. Tony Abbott, of course, opposed the RSPT and opposes the MRRT. So Gillard is promising to increase taxation of economic rent while Abbott is promising not to. According to the precedents, that means Abbott will probably win.

Why only “probably”? Because the PRRT was Labor policy at the time of the Hawke landslide of 1983, was announced during the Hawke government's first term, survived an apocalyptic advertising campaign by the oil companies, and was a point of difference between the parties at the 1984 election, which Hawke won. Since then, however, the Superannuation Guarantee has turned even low-paid workers into (among other things) small shareholders in mining companies, so that they can be duped into thinking of themselves as shareholders first and workers second. That makes life harder for Gillard than for Hawke. Moreover, the PRRT was in Labor's platform for the 1977 and 1980 elections, which Labor lost.

In principle, the economic rent of land can be captured by a profit-based RRT with a deduction for normal profit. In practice, however, as the value of land per unit area tends to be a smooth function of location, it is more convenient and more accurate to value land from real-estate transactions. This method is used for land tax and site-value rates, which might be described as valuation-based RRTs.

At the 1910 federal election, the Labour Party (as it was then called) under Andrew Fisher won majorities in both houses of Parliament on a platform of introducing a federal land tax, with a £5000 threshold and with no exemption for the family home. As the alternative sources of federal revenue at that time were indirect taxes, it was as if Kevin '07 had won by promising to abolish the GST in favour of an all-in land tax.

The federal land tax was duly introduced in the Fisher government's first budget, and remained in force until it was abolished by the Menzies government in 1952. Restoration would be difficult because the rise in the rate of home ownership — from 40% in 1947 to 70% in the 1960s — produced a large majority of voters who could be beguiled into thinking of themselves as land owners while downplaying their interests as consumers, workers, and land users.

Restoration of the tax remained Labor policy until 1964, when the tax was unconstitutionally omitted from the published version of the party platform without any authorization from the 1963 national conference. It was never reinstated. (Clyde Cameron told the story in the speech “How Labor lost its way”, delivered at the opening of the South Australian headquarters of the Henry George League on May 13, 1984.) The elections lost by the Labor Party while the restoration of federal land tax remained in its platform were those of 1954, 1955, 1958, 1961 and 1963.

Land and natural resources tend to appreciate due to growth in effective demand. Capital, in contrast, normally depreciates due to wear & tear and obsolescence. If the real value of an asset rises, it induces production of more such assets until competition enforces the usual depreciation — unless, of course, the assets cannot be produced or their production is protected from competition. So a capital gains tax (CGT) overwhelmingly captures economic rent rather than normal profit.

The last leader who sought a mandate to increase or extend CGT was Kim Beazley, who in 1998 proposed to raise an additional $200 million per annum by bringing pre-1985 assets into the CGT net. Only capital gains accruing after 1999 were to be taxed; but that didn't stop opponents from branding the tax “retrospective” — just as the RSPT was branded “retrospective” for taxing future super profits of existing projects.

On ABC radio in Brisbane on October 1, 1998, Beazley declared: “The only retrospective tax in effect in this election campaign is the retrospective impact on savings of a thirty billion dollar GST... If you're in a room with a gorilla and a chihuahua, on whom do you focus? You focus on the $30 billion gorilla, not the $200 million chihuahua.” Beazley won the popular vote (two-party preferred), but failed to win a majority of seats. Australia got the gorilla.

The introduction of the CGT by the second Hawke government was not a departure from the rule, because Hawke did not fight an election on it, and because the package was sweetened by the elimination of double taxation of dividends, including those from corporations whose “profit” was mostly economic rent.

The spectre of CGT figured in the 1980 election campaign, for which Labor had the PRRT in its platform. In a TV debate with Primary Industries Minister Peter Nixon, Labor's Senator Peter Walsh was asked about Labor's policy on taxing capital gains and inherited wealth. According to his memoirs (Confessions of a Failed Finance Minister, Random House, 1995), Walsh gave the standard response which had been stated in the party platform, and which had been repeated by Shadow Treasurer Ralph Willis a few weeks earlier, namely that a Hayden Labor government would review the tax system. In the hands of the Coalition parties and the Murdoch press, in the last week of the campaign, this non-answer was transmogrified into a wealth tax on the family home, and cost Bill Hayden the Prime Ministership.

The MRRT, like the PRRT, targets economic rent. If the PRRT was the motive for hobbling Hayden, the phantom tax on the family home was the means. The MRRT is certainly a motive for hobbling Gillard. We can expect the means to become apparent in the last days of the campaign.

The money-changers in the Temple of Jerusalem were protected from competition: they had the monopoly on the supply of the only coinage in which pilgrims could buy sacrificial animals. So at times of high demand (like Passover), they could rake in more silver than they paid out. The difference, less the cost of coining, was their economic rent — for which Jesus branded them thieves. It doesn't matter that Gillard is no messiah, no prophet, and no saint: she is threatening the tables of the money-changers, and they will crucify her any which way they can.