Not long before Joe Hockey emerged yesterday to declare the Coalition would be opposing the corporate tax cut linked to the MRRT, on the basis that it would be “Pyrrhic”, Tony Abbott had told the joint party room that he was demanding Labor’s “relentless negativity” must stop. He then went on to mount an attack on the carbon pricing package.

Even for Mr Abbott, our po-mo alternative PM who is unconstrained by any need for consistency as he flips through all possible positions on all possible issues, it was a particularly tricky manoeuver, especially in a party room prone to occasionally suggesting he might be, well, less negative and produce more policy.

Meantime, Wayne Swan must be unable to believe his luck, with the Greens indicating they’ll join the Coalition in voting against the corporate tax cut. This had the effect of transferring the Opposition’s mining tax theatrics off stage and into the real world.

“Greens put business tax cuts at risk,” trilled The Australian. That would be an impressive feat given they only have 9 senators.

The Opposition couldn’t better sum up their own fiscal confusion if they tried: the party of lower taxes will not merely raise corporate taxes to pay for Tony Abbott’s effort to overcome his difficulties with female voters, but will join the rabid anti-corporate Greens (small business good, big business bad) to block Labor’s corporate tax cut.

Because Pyrrhic.

Eliminating the tax cut removes the last economically-coherent element of the mining tax package: imposing greater taxation on the booming mining sector to reduce the taxation burden on the rest of corporate Australia, to the particular benefit of trade-exposed companies struggling with the high dollar.

In truth, the tax cut for larger companies, worth $2.4 billion, isn’t going to make a huge amount of difference, and probably far less than a week’s currency movement, but then the tax cut was scaled back from 2% to 1% as a consequence of the mining industry’s successful campaign against the RSPT. That large businesses may now miss out altogether because of the consequences of that campaign might again make non-mining businesses reflect on their silence in the face of the mining industry onslaught.

The original recommendation from the Henry Review was that the corporate tax rate be reduced to 25%, more in line with competing economies. That never made it beyond the recommendation stage.

A strange outcome for a country where, apparently, we’re desperately searching for ways to adjust to the impact of an extended resource boom.

Without any tax cut, the mining tax becomes a simple grab-bag of measures, centred around the rise in compulsory superannuation. And don’t forget the overall package will be a net cost to the Budget, eventually of billions of dollars courtesy of the rising cost of superannuation tax concessions. In its first year, before the corporate tax cut for larger businesses would apply, the net cost will be $1.7 billion.

The overall result: the party of smaller taxes wants to block tax cuts, and the party that is hellbent on returning the budget to surplus wants to slash revenue.

Just another day in contemporary politics.

Peter Fray

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Peter Fray
Editor-in-chief of Crikey