Bloomberg News

Gillard Slips in Australia Poll as Tax Damages Credibility

February 25, 2013

Australia's Prime Minister Julia Gillard

Julia Gillard, Australia's prime minister. Gillard’s Minerals Resource Rent Tax, which puts a 30 percent levy on iron ore and coal profits, raised A$126 million in its first six months, trailing targets, the government has said. Photographer: Mark Graham/Bloomberg

Prime Minister Julia Gillard slipped behind opposition rival Tony Abbott as Australia’s preferred leader for the first time since August after her credibility was dented when a mining tax she helped design brought in less revenue than forecast.

On the question of who would make the better prime minister, Gillard fell 5 percentage points to 36 percent, while Abbott rose 1 point to 40 percent, according to a Newspoll survey published in the Australian newspaper today. The ruling Labor party rose 1 point to 45 percent on a two-party preferred basis, with the Liberal-National opposition down 1 point to 55 percent, it showed.

Gillard is struggling to build momentum ahead of elections due Sept. 14, amid opposition claims the shortfall in revenue from the tax on iron ore and coal profits is an example of her government’s economic incompetence. Australia’s first female prime minister has also been confronted with scandals involving former Labor lawmakers and the resignation of two senior ministers, leading to speculation predecessor Kevin Rudd may make another challenge to her leadership.

“Gillard’s position is looking extremely difficult,” said Paul Strangio, a senior lecturer in politics at Monash University in Melbourne. “Governments have come back from similar positions and this one needs to make sure it works hard to get its message out and is not distracted by any leadership speculation.”

Rudd’s Support

In today’s poll, 24 percent of respondents said they were more likely to vote for Labor if Rudd was restored as party leader, with 13 percent saying they were less likely to and 62 percent saying it would make no difference.

The Feb. 22-24 telephone survey of 1,143 people had a margin of error of plus or minus three percentage points. The previous poll was held Feb. 1-3. The two-party preferred measure is designed to gauge which major party is likely to win the seats required to form a government.

Gillard’s minority Labor government on Feb. 8 announced that the mining tax raised A$126 million ($129 million) in its first six months, less than 10 percent of the A$2 billion the Treasury forecast for the year to June 30.

Abbott, 55, who has vowed to rescind the mining levy and a tax on carbon emissions, says the revenue shortfall is an example of the government’s failure to manage the A$1.45 trillion economy.

“There’s very little wrong with our country that a change of government wouldn’t fix,” Abbott told an audience of business leaders in Sydney on Feb. 15.

Mining Critics

The Minerals Resource Rent Tax, which puts a 30 percent levy on iron ore and coal profits, was designed by Treasurer Wayne Swan and Gillard after she ousted Rudd as party leader and prime minister in June 2010. Rudd’s popularity with voters had plunged in part due to an advertising campaign conducted by the mining industry against his proposed levy on resource profits.

Rudd, who failed in a challenge for Gillard’s leadership a year ago, said in a Feb. 12 interview on Sky News that changing the tax was a matter that should be addressed by Gillard and Swan as it “has not collected any real revenue of any significance.”

The shortfall was due to “global instability, commodity price volatility and a high dollar,” Swan said Feb. 8. Shadow Treasurer Joe Hockey called on Swan to resign, saying the tax was fundamentally flawed when designed and that Labor could no longer rely on revenue from the levy to fund promised education and welfare programs.

State Royalties

Under an agreement Gillard negotiated with BHP Billiton Ltd. (BHP), Rio Tinto (RIO) Group and Xstrata Plc, mining companies can claim depreciation allowances on their iron ore and coal projects. Any royalties paid to state governments on iron ore and coal can also be deducted.

Western Australia, the nation’s biggest iron ore producer, said in May 2011 it would increase its royalty rate from 5.625 percent to 7.5 percent by July 1, 2013, for every ton of the steel-making ingredient mined in the state, effectively cutting the revenue Gillard’s government could reap.

Rio Tinto said Feb. 14 it had booked a deferred tax asset from the mining tax of $1.13 billion in the second half.

“Swan admitting that the revenue raised from the tax was minimal was bad enough, but then Rio Tinto coming out and basically saying that Australian taxpayers now owe the company money was devastating for Labor,” said Andrew Hughes, who conducts political-marketing research at the Australian National University in Canberra. “The government is rapidly losing whatever trust the voters still had in it.”

Getting Nervous

Labor backbenchers in marginal seats will be getting nervous and may ask Rudd to re-contest the leadership, Hughes said. Rudd told Channel 7 television on Feb. 15 that a challenge to Gillard was “not happening.”

Gillard’s bid to focus on policies including increased education spending and a national disability insurance program has been hampered by scandals involving Labor politicians.

Craig Thomson, a former national secretary of the Health Services Union and former Labor party lawmaker, faces charges that he misused a union credit card to pay for prostitutes, air travel and cash advances between 2002 and 2007. The alleged misconduct occurred before he entered parliament.

In New South Wales, the nation’s most-populous state, an anti-corruption inquiry has been hearing allegations that former Labor lawmaker Eddie Obeid earned millions of dollars from illegal property deals.

Gillard was forced to reshuffle her ministry this month after Attorney General Nicola Roxon and party Senate leader Chris Evans resigned from cabinet.

To contact the reporter on this story: Jason Scott in Canberra at jscott14@bloomberg.net

To contact the editors responsible for this story: Edward Johnson at ejohnson28@bloomberg.net; Peter Hirschberg at phirschberg@bloomberg.net


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