Kevin Rudd had the great misfortune to have single-handedly saved Australia from a global recession in his first 12 months. That lit a flame of hubris that has now burnt him down.

When the histories of Kevin Rudd’s 941 days as Prime Minister are written, the political boffins will no doubt focus on the climate change backflip and going soft on asylum seekers, but there can be no doubt he was brought undone by the mining tax.

Whatever you might think of the idea of a Resource Super Profits Tax, this one, its timing and the way it was done, was a spectacular folly.

And the main reason for that, in my view, has been little discussed – it muffles the signal of Australia’s economic success. Instead of driving home his great achievements of 2008/09, Kevin Rudd buried them under a new, risky and unnecessary tax.

We came through the GFC with no recession, no sovereign debt problem and only a short-term budget deficit. The rest of the western world is now engaged in a desperate debate about whether they can raise taxes and cut spending without sending their economies back into recession. Greece, UK and Spain have no choice and have already started.

Instead of using Australia’s success to cut taxes and set us up for the future by attracting investment, Kevin Rudd decided to act like one of the desperate, near-bankrupt governments and actually raise taxes to make Australia’s short-term deficit a little shorter.

What’s more he did it with a new and complicated tax that will drive investment away and threaten the basis of Australia’s success, while getting him into a messy and unnecessary political battle with the global mining and project finance industries.

It was an incredible mistake — one of the maddest, most idiotic episodes in this country’s history.

How did it happen? I think it flowed directly from Rudd’s successes during 2008 and 2009. As Lenore Taylor and David Uren spell out in their book Shitstorm, published this week, Rudd and Treasurer Wayne Swan made all of the big decisions during that period.

It wasn’t even the ‘kitchen cabinet’ of Rudd, Swan, Julia Gillard and Lindsay Tanner, otherwise known as the Strategic Priorities and Budget Committee (SPBC), which has been making all the other decisions. It was just the two of them, with advisers and bureaucrats.

Taylor and Uren say the “the concentration of power … became a habit”, and they quote Labor elder statesman Robert Ray as saying that while Howard’s model for concentration of power was a pyramid, Rudd’s dominance is more like Nelson’s Column, with Rudd sitting up on top.

According to Ray it is “centralisation of power in the extreme”.

The announcement of a review of Australia’s future tax system was made on March 13, 2008, when America’s subprime mortgage crisis was just a drumbeat. The Reserve Bank was still raising interest rates and Treasury was still talking about cutting government spending.

At that point Rudd and Swan had not gone on the three-week tour of Europe, the US and China that opened their eyes to the dangers of what was happening and turned them into a duumvirate. It was on that trip that the managing director of the IMF, Dominique Strauss-Kahn, shocked Kevin Rudd by telling him that the America’s subprime losses could reach a trillion dollars.

For some strange reason they asked Treasury Secretary Ken Henry to chair the review of the tax system, perhaps because they didn’t know and trust enough business leaders who could do it. The result, 13 months later, was a document that laid out a Treasury economists’ utopian tax system, rather than one that was designed for the real world.

It included, among other things, a land tax and a resources rent tax. For five months after receiving it from Ken Henry in December, Rudd and Swan kept it in their offices and kept all discussion of it to themselves.

And then, apparently in a funk about Tony Abbott’s sudden success, they decided they could destroy Abbott’s election campaign by bringing forward the budget surplus by two years using Henry’s resources rent tax proposal. It was a purely short-term political decision, but one that had long-term implications for Australia.

So on May 2, a week before the budget, wham! A 40% resource rent tax for miners, on top of company tax, raising an extra $9 billion a year — money that Australia simply does not need to raise.

They called it tax reform, but as Peter Costello pointed out this week, tax reform is where the system is simplified and the overall tax burden reduced, as it was with the GST. The RSPT is more complicated and is a tax increase. It’s the sort of mistake that gets made when you’re convinced of your own brilliance and don’t talk to anyone.

This is why Kevin Rudd lasted only 941 days as PM, deservedly so.

Peter Fray

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Peter Fray
Editor-in-chief of Crikey