CHAPTER 8
BLOOD AND GUTS
I’ll go to my grave thinking about what a lost opportunity for a government I was proud to be part of.
Martin Ferguson
WHILE The Killing Season could not have existed without its two central characters, it also needed a cast of senior ministers to tell the story. The series was always intended as a drama, owing more to Netflix than a parliamentary broadcast, but its plot points were the policy battles of the Labor government. With a keen eye on Prime Minister Tony Abbott’s wavering fortunes, the frontbenchers were the hardest to recruit.
As well as picking our way carefully between the two sides, we had to consider how my interview questions would be received, analysed and passed on to others as evidence of our approach. I flew to Canberra for the launch of former Foreign Minister Gareth Evans’ diaries, knowing Shadow Treasurer Chris Bowen would be there. I listened to Paul Keating’s angry speech about Hawke and wondered if Rudd and Gillard’s battle would endure, like theirs had. I sidled up to Bowen at the tea urn to make my pitch. I also sat with Gillard’s tribe, including Bob Hawke, at the launch of Greg Combet’s book. I watched the dynamic between Gillard and Combet closely since he was unafraid to criticise her leadership moves. Once we had a majority of the frontbench, I hoped Bill Shorten would feel under pressure to take part.
As I moved between the two sides (good Kevin/bad Kevin, patient Julia/ruthless Julia), my certainties moved too. At times I thought I would lose my mind in no-man’s-land. I longed for a story with a single villain whom I could pursue to the ends of the earth.
The conflicting narratives were hardest to unravel over the mining tax.
The second-most-significant relationship in the Rudd Labor government was the one between Kevin Rudd and Wayne Swan. In some ways it is harder to read, perhaps, because of the layers of experience the men shared, in friendship and enmity. In his interview, Swan was much more cautious than Gillard. He had few good words to say about Rudd but he avoided the deeply personal criticisms that Gillard allowed herself.
After a bitter falling out over the leadership battles of the 2000s, Rudd and Swan found a way of working together. It enabled them to confront the crisis of the GFC together. By the beginning of 2010, their relationship was strained again, this time by the mining tax.
Lachlan Harris has a unique perspective. He came to work as press secretary for Kevin Rudd from Wayne Swan’s office.
Even right up to the bitter end, I think they were still constructively working together in an attempt to win the 2010 election and to govern well. I mean anyone who’s been around a while knows that things are always going to be tough between Kevin and Wayne. But my view is things were still moving forward. Unfortunately I think the mining tax was a big point where that relationship came under real pressure.
The mining tax was a difficult section of the interviews with Rudd and Swan; their answers were formulaic and rote. The adage ‘Success has many fathers but failure is an orphan’ says it all.
By the time I reached the topic with Treasury secretary Ken Henry, the architect of the mining tax, we had been talking for hours. The light had dropped outside the narrow windows of the sandstone building at Sydney University where we were filming. Henry began worrying about his dogs, alone and unfed at home. We paused for a card change in the camera, time for a brief stretch.
I noted how Henry retreated in his chair when we began discussing the tax. During the break, he said talking about the tax made him uncomfortable. The interview resumed.
SF: So why does the mining tax make you so uncomfortable?
Behind me, researcher Trish Drum, a gentler creature than I, gasped: you can hear her on the audio track. Henry shook his head.
KH: You’re nasty, you are!
SF: No.
KH: The thing about the mining tax is that at the end of the day there are no real winners. The Budget doesn’t win. The mining companies don’t win: it’s not the sort of tax system they want. And for the state governments, some of them, royalty revenues are strong now, but royalty revenues are incredibly volatile and there’ll come a time when they too would have preferred a more stable source of revenue from the Commonwealth. I guess most importantly of all, the people of Australia don’t get the return from these resources that are being taken out of the ground and sold off, and they’re irreplaceable. So there are no winners.
The only thing that helped me grapple with the mining tax and its arcane world of resource rents and uplift rates was that I had made a program about it in mid 2010 for the ABC’s Four Corners. It had involved one of the longest days of my working life, starting in the Qantas Club at Perth Airport at 5 a.m. in a sea of workmen in hi-vis jackets, en route to Port Hedland up the West Australian coast. Five flights later—two choppers and three jets, including an interview with businessman Clive Palmer on his plane—I arrived at a dingy motel outside Canberra, a last-minute booking. I sat on a bunk bed in a ‘family-style’ room listening to the thrash metal coming from an adjoining room. I knocked on the offender’s door. After a few minutes, the door opened and a man peered out, eyes ringed with heavy eyeliner, the room behind him pitch-black. I told him: ‘I got up at four, I flew all over Western Australia, then I flew here, now I’m exhausted. I have to interview the Treasurer at 9 a.m. and I haven’t got a hairdryer. Can you turn the fucking music down please?’ I only used some of those words; I can’t remember which ones. The bottom line is at least I forged some knowledge of the tax and the political debate that ensued at the time. Wayne Swan wasn’t in his underpants when I arrived for that interview.
The Treasurer received Ken Henry’s 1000-page report on the Australian tax system just before Christmas 2009. Swan said he had trouble getting the Prime Minister to pay attention to the recommendations.
I struggled to get him to agree to release the report, and then I struggled to progress internally his final agreement to put in place the mining tax.
Rudd said Swan wanted the tax. I had learnt to become suspicious of Rudd when the language in his answers became swollen, phrase upon phrase, sense crushed under the weight of the syntax.
The advice of my minister, having delegated responsibility to him for this purpose, was that he needed, for his own credibility as a tax reformer, to take this as a symbolic and emblematic and core part of the taxation review into practice. He led this, he led it, it was his initiative, he recommended it, he ultimately worked really hard on Julia and myself to bring us on side. We accepted it.
Julia Gillard thought Rudd was gripped by decision-making paralysis.
Well, once again this was a decision that got drifted into, and because you drift, your options close down and the amount of space you’ve got to manoeuvre in closes down. It’s once again like the CPRS. You end up painted into a corner.
Ken Henry didn’t share that view.
Didn’t seem to me that he was delaying the taking of that decision, no.
Henry did, however, notice that Rudd’s engagement with the policy fell away, leaving Swan to carry it.
KH: Probably wasn’t as engaged as he might have been in the lead-up to the announcement.
SF: Did that hurt the political process?
KH: It’s hard for me to judge. It’s really hard to judge. I guess I do think that it required a stronger sales job. I’ll say that much.
Rudd was adamant the responsibility was not his.
You know you can’t say this Prime Minister, Kevin Rudd, he’s such a centralist that he doesn’t delegate enough, so the guy delegates and allows the Treasurer to run with it, and then say there are problems in the end because the Prime Minister didn’t pay enough attention to the detail. God give us a break. If you can’t delegate tax reform to the Treasurer of the day, then frankly you don’t have a functioning system of government.
Remarkably, one of the government’s biggest reforms never went to Cabinet for a decision. Even Martin Ferguson, Minister for Resources and Energy, wasn’t given an opportunity
to advise the Prime Minister about the proposal.
SF: Did Kevin Rudd take too long to make a decision to proceed with the mining tax?
Martin Ferguson (MF): I don’t know ’cause it never went to Cabinet. So I don’t know what was going on in the so-called Gang of Four.
Swan and Rudd couldn’t agree on the role of the Resources Minister.
SF: Right at the beginning, is it right that Kevin Rudd told you to keep Martin Ferguson out of it?
WS: Yes.
SF: Why?
WS: Because he didn’t trust Martin Ferguson.
Rudd disagreed.
That is simply not true.
There was no way of verifying the contradictions between Rudd and Swan on the tax. Whatever the truth is about Martin Ferguson’s involvement early on, the failure to bring the mining industry onside is one of the biggest regrets of his parliamentary career.
I’ll go to my grave thinking about what a lost opportunity for a government I was proud to be part of to achieve for the Australian community. I hope someone in the future has the same commitment to achieving it. We destroyed their [the community’s] trust and destroyed our opportunity to deliver it for Australia. A huge political mistake, a huge economic mistake, something we were held accountable for in 2013.
However unbelievable it seems now, Ferguson said there was no resistance from the industry to a profits-based tax.
I saw the CEOs, in Sydney and Melbourne, of Rio, BHP and Xstrata. They wanted a profits-based tax, and in the lead-up to it, Marius Kloppers [CEO of BHP Billiton], who effectively became the leader of the mining industry in that period, always conceded that things were good: high commodity prices, record profits, especially out of iron ore and coal. He totally accepted the industry should pay some more tax, never a question. The question was how you developed the tax and how you put [it] into place.
Like Ferguson, Henry believed that the mining industry supported the proposed change to the tax regime, but he didn’t accept they were willing to pay more.
My understanding of their position was that they wanted a profits-based tax but they didn’t want to pay any more tax. Get rid of the royalties, that’s what they wanted. Replace it with the profits-based Resource Super Profits Tax. But they didn’t want to pay any more tax than they were paying already under the royalties.
Wayne Swan didn’t believe a better-handled consultation with the industry would have made any difference to the way they responded.
The truth was, behind the scenes, they started from the very beginning to martial opposition, and whatever its [the tax’s] design they would’ve opposed it ’cause they weren’t going to pay another cent if they didn’t have to.
It’s easy to forget that the items on the government’s reform agenda—CPRS, health reform, mining tax—were all happening at once. Twelve days after the conclusion of the health reform agreement with the states, and five days after the leak of the CPRS decision, Rudd and Swan released the Henry Review and announced the mining tax.
Rudd led Swan into the press room at Parliament House, Ken Henry standing sentinel at the door—at the last minute, Rudd had insisted on making the announcement himself. Responding to the review, the government announced a 40 per cent tax on resource profits that they predicted would bring in $12 billion in its first two years. Until then, few people in the government knew about the proposed mining tax or the timing of its announcement.
West Australian Senator Glenn Sterle had no idea it was coming. On the first weekend of May 2010, Sterle was running a corporate backpacking program in the Kimberley. A plane carrying him and representatives from the Chamber of Minerals and Energy, Rio Tinto and Woodside arrived in Kununurra.
We land and one of the mining people says, ‘Glenn, do you know about this mining tax?’ I had no idea. This was on the Sunday, I was going bush the next day, and when Kevin and Wayne dropped that mining tax on us I was just so annoyed. They woke the sleeping giant and we weren’t enemies of the resource sector.
Lachlan Harris remembered watching the announcement. He acknowledged they weren’t ready for what would follow.
It didn’t bubble up as an issue of great significance. That’s how you know that we weren’t prepared. It wasn’t kind of like ‘Today’s mining tax day everyone, cancel the next two weeks’ kind of thing. No, that wasn’t how it worked.
Ken Henry agreed.
I think frankly everybody, everybody was surprised by the campaign against that tax. Nobody, perhaps nobody should’ve been surprised, but everybody was surprised.
Economic adviser Andrew Charlton travelled to Perth just after the announcement. He recalled being taken aback by the public reaction to the tax.
As we landed in Perth I was listening to the talkback radio, and the tone of the response was like nothing I’d ever heard before.
Nine days later in the federal Budget, the forecast revenue from the mining tax was included in the forward estimates.
The mining industry’s campaign against the tax intensified. Lachlan Harris remembered watching their first advertisement on television.
I was sitting next to Sean Kelly and I saw an ad come on air, onto TV, and it was the anti-mining tax ad. And I looked over at Sean and I said, ‘Mate, Neil Lawrence made that ad’, the man who had made the Kevin 07 ads, ‘and we are in a lot of trouble’.
The mining industry hired creative director Neil Lawrence and focus group researcher Tony Mitchelmore, one half of the much-lauded Kevin 07 campaign team, to craft and sell the industry’s message to the public. Lawrence and Mitchelmore were available to work for the industry because the ALP had stopped using them, a decision taken by Karl Bitar after he had taken over as the party’s national secretary. Lawrence remembered a perfunctory communication from Bitar.
I had a text from him saying, ‘I have decided to review all suppliers to the Labor Party. Please let me know by return email if you would like to be considered as a candidate’. My email was something along the lines of ‘I don’t think so’. I never spoke to Karl Bitar about it and haven’t seen him since. I did speak to Mark Arbib in Parliament. I said, ‘What happened?’ He said, ‘Look, Karl just didn’t think he could control you’.
Lawrence concluded the government’s argument in support of its proposal was flawed.
I think they thought it was a pretty easy political win, you know? This is our country, these resources belong to us, Australians need to get a fair share. It sounds very sellable, but there were some underlying problems with their argument.
Martin Ferguson also remembered seeing the ads.
I think the mining industry ads were second to none. They absolutely killed us: ordinary people talking about the importance of the industry.
In suburban focus groups, Mitchelmore heard how mining was propping up the economy and Rudd was ruining the country.
The two big narratives out there at the time were this two-speed thing: the only thing keeping the country going is mining, the rest of the economy is tanking, we need China, we need mining. The other big narrative out there at the time was everything that Kevin Rudd is touching doesn’t seem to be going well. They didn’t see it as a legitimate move. They saw it more as a political move: that debt was a real problem and he was using this mining tax to save his neck.
Ken Henry rejected the argument that the mining industry saved Australia during the GFC.
[It] shelved investment projects, and it reduced its workforce … Had every sector in the Australian economy behaved that way, then by May 2009 Australia would have been sitting on an unemployment rate of more than 19 per cent.
The mining industry put $22 million into its campaign against the tax, and the attack was unrelenting. Swan’s deputy chief of staff, Jim Chalmers, likened it to warfare.
There were shells exploding around us every day. It felt like there was, you know, blood and guts everywhere in this debate. It was just one of those really willing ones where the survival of the government was at stake, in the same way that it
was in some of the other issues. But that period was just so intense that it took a toll on everyone.
The Prime Minister shifted from spruiking health reform to energetically campaigning for the mining tax. Behind the scenes, Gillard said, it was another story.
[An] obviously seasoned politician in front of the TV cameras could, you know, turn it on, but his demeanour behind closed doors was absolutely miserable, irritated. You know, nothing in life was going his way, was the sense. Everything was a sort of eye-rolling, why is everything so hard, why is no-one helping me, why do I have to do everything. Just miserable. In big decisions you would get to a discussion point where you would think that the next natural thing would be to say okay, let’s do X or let’s do Y. Whenever you got to that point, he would find a reason to go and get more work done to delay the making of the decision. So if I was going to summarise it, personally miserable, politically paralysed.
I put her description to Rudd.
That is utterly false. Number one, I had delivered health and hospital reform through my own efforts, supported by Nicola Roxon. Number two, we were in the trenches on the question of tax reform delivered by Wayne Swan. Number three, on the rest of the government’s agenda, including its international policy agenda, we were proceeding full speed ahead.
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