TAX NEWS - June 2010

Tax backlash leaves Gang of Two isolated

Senior Labor figures are distancing themselves from the government's problematic mining tax proposal, with confirmation the Prime Minister and Wayne Swan were largely responsible for developing the policy.

Sources have confirmed that Mr Rudd's potential leadership rivals, Deputy Prime Minister Julia Gillard and Finance Minister Lindsay Tanner, were largely kept out of the policy development process of the mining tax.

They were brought into the loop only when it was too late in practice to stop the tax proposal from going ahead.

It had previously been believed the cabinet's strategic priorities and budget committee - the so-called Gang of Four made up of Mr Rudd, Mr Swan, Mr Tanner and Ms Gillard - had all been joint authors of the policy that is now threatening Mr Rudd's leadership, even though Newspoll suggests more people think the tax is good for the economy than bad.

According to one senior source, by the time Ms Gillard and Mr Tanner were brought into the loop, around the time of the budget last month, "the locomotive was going too fast".

"Could Gillard and Tanner have said, 'Stop the (mining tax) train we want to get off'? Perhaps. But by that stage it would have been very difficult," one senior source said. "The nuance is important here. Were Tanner and Gillard totally isolated from the process? No. But by the time it was presented to them by Rudd and Swan, it was as a complete package, interlocked and with the complicated architecture finished.

"By that stage it would have been very difficult to unpick."

This is the second apparent leak of discussions inside the Rudd kitchen cabinet in recent weeks. Fairfax newspapers reported this month that Mr Tanner had been the sole dissenter on the decision to back away from the proposed emissions trading scheme.

When The Australian put the story about Ms Gillard's and Mr Tanner's marginal involvement in the mining tax to the offices of the Prime Minister and Treasurer, the response was that the offices did not discuss the nature of cabinet deliberations.

Sources said Mr Swan and Mr Rudd started working together - without Ms Gillard and Mr Tanner - on the mining tax in late December after they received the Henry taxation review.

Ken Henry, the head of Treasury, and his committee recommended reform of the mining tax regime. But it was not in the form ultimately adopted by Mr Rudd and Mr Swan.

While not isolating Ms Gillard completely from the tax, the strategic leaking of the news she was not intimately involved in its development gives her the potential room to abandon the tax were she to be pressed into taking over the Labor leadership.

Despite the Newspoll findings, the tax is blamed for the disastrous plunge in the government's stocks in the key battleground resource states of Western Australia and Queensland. Wipeouts in these states could cost Labor the election due later this year.

"You have to understand there are layers even within the Gang of Four," said the source. "Rudd and Swan constitute a gang of two."

Asked on last weekend's Insiders program by host Barrie Cassidy about how the Gang of Four operated in the case of the decision to ditch the ETS, Mr Tanner replied: "As a cabinet minister I've got ownership of government decisions whether I like it or not, Barrie. It's something that I often get people in my electorate saying to me, 'Well, why don't you stand up and disagree?'

"Well, you can't have it both ways - if you're part of the team you've got to behave like you're part of the team."