Finally, the Treasury based its revenue projections for the proposed new tax on very sketchy data. Based on these estimates, the government decided to ‘bank’ the revenue and spend it on a range of initiatives, including infrastructure projects, a corporate tax cut and improvements to superannuation (see below). However, both the government and the mining companies dramatically misjudged the amount of money that would be collected from the mining tax, although in different ways. The mining companies launched a ferocious, almost unprecedented advertising campaign against the government (the campaign by film companies against Earle Page’s entertainment tax in 1929 is the most relevant precedent), believing they would pay much more in tax than the government had estimated. There was a massive disconnect in understanding between the companies and the Treasury as to how much taxable profit was likely to be generated over the next four years. Ironically, as part of the negotiations entered into by prime minister Gillard and treasurer Swan to neutralise the issue, the mining companies shared their revenue projections with the government. With access to these much more bullish projections, Gillard and Swan dramatically recast the tax, making it more acceptable to the companies, but without a dramatic loss of revenue. As it turned out, these projections were wildly optimistic, and nowhere near that much revenue would eventuate.
Such mistakes meant that the proposal for a worthwhile tax reform was highly controversial and ultimately subject to being overturned upon a change of government. Kelly is scathing when he says that as ‘a policy mistake perpetrated by the Rudd Government, nothing matches the mining tax for its scale of failure’, and he is accurate when he says that it ‘was not a case of Labor running on a bad idea but, rather, of mishandling a good idea’.29 Swan, meanwhile—the key figure in advising Rudd and the government that embracing a profits-based mining tax was a good idea—was right in urging the earlier release of the report. He was also right in taking responsibility for the design flaws in the tax.
While the mining tax inevitably drew the most attention in the debate around the Henry Inquiry, several other decisions were based on the review. One that I was intimately involved in was the decision to gradually increase the superannuation guarantee (SG) from 9 per cent to 12 per cent.
When Keating designed his universal and compulsory superannuation system, he had envisaged the ultimate SG rate reaching 15 per cent to ensure adequate retirement incomes for most Australians, and he had legislated for gradual increases to 12 per cent. The SG had only reached 9 per cent by the time the Keating government lost office, but the Howard opposition promised to maintain the program of increases to 12 per cent. However, it reneged on this commitment in office. In 2009, Rudd appointed me to the Cabinet as the minister for financial services and superannuation (and minister for human services) with a specific brief to examine the idea of resurrecting the Keating goal of a 12 per cent SG. I needed little convincing, as 9 per cent was an inadequate rate of savings for most Australians to attempt a dignified retirement without recourse to the age pension.
The Henry Inquiry did not recommend an increase in the SG, but I argued to Rudd and Swan that this change should be made while the government was going through a significant tax-reform process, as we would be unlikely to get another opportunity to complete this long-term Labor agenda. While the SG increase would be paid by employers, and offset in wage negotiations, the cost to the government would be substantial because people generally pay much less tax on their superannuation contributions than on their income. It was also important to improve the fairness of superannuation tax by providing support for low-income earners who received very little by way of tax concessions in superannuation. Finally, after hours of meetings and evaluation, Rudd and Swan agreed to resume the gradual increases in the SG until the rate reached 12 per cent, and to introduce a Low Income Superannuation Contribution (LISC), which effectively meant that people receiving incomes under $37 000 a year paid no tax on their superannuation contributions. As a result, it was estimated that the national pool of savings would increase by $500 million by 2037, and the proportion of people on the full age pension would halve: a serious reform that was to the credit of both Rudd and Swan. The Abbott government stalled the SG increase and abolished the LISC, but the likely reform framework for future Labor governments has been set.
If you ask a member of the public how many of the Henry Inquiry’s recommendations have been implemented, they will probably tell you, ‘One, the mining tax’. This is not accurate. Of the inquiry’s 138 recommendations, the Labor government had wholly or partly implemented twenty-four of them by the time it left office. Some of the recommendations were clearly long-term ones, requiring consultation with the states. The history of tax reform in Australia shows that reviews like the Henry Inquiry are important, but it may take many years of consultation before the bulk of their recommendations are implemented.
Another reform that Swan was intimately involved in was applying a price to carbon pollution. As shadow treasurer, Swan had travelled to London to discuss climate change policy with the British Government’s handpicked expert adviser Sir Nicholas Stern and chancellor of the exchequer Gordon Brown. Swan believed that
