Twiggy (20 page)

Rudd responded to Forrest’s daily media appearances by
saying people should take the billionaire’s comments with a “grain of salt”. By early June, Rudd had stopped returning Forrest’s phone calls, accusing him of campaigning against the RSPT to avoid “paying a dollar more in tax”. Forrest insisted he was happy to pay more tax as long as the system was fair. “I’m very happy to pay tax, in fact I’m honoured to be one of Australia’s major taxpayers,” he
said. How Forrest arrived at this conclusion was puzzling, because at that time he had never actually signed a corporate tax cheque. This was because Fortescue had never made a taxable profit, thanks largely to the legitimate deductions for financing and exploration costs available to start-up miners. Forrest did not send his first corporate tax cheque (which was for $140 million) to Canberra until
late 2011.

On 9 June, Forrest shared the stage with his
bête noire
, Gina Rinehart, at what was to become one of the seminal events of the battle: the lunchtime anti-tax rally in Perth attended by 2000 people. The rally was held in a park behind the Hyatt hotel, where Rudd was about to deliver a speech. It also happened to be next door to Fortescue’s head office, ensuring that most of the
company’s staff were among the placard-wielding audience. Never before had a protest against injustice been led by two of the richest people in the land. But for once Forrest wasn’t the centre of attention, as the normally reclusive Rinehart – who had donned her finest pearl necklace for the occasion – climbed on the back of a flatbed truck and screamed herself hoarse, leading the compliant crowd
in a repetitive chant of, “Axe the tax!”

Clad in the high-visibility overalls he normally wore only in the Pilbara, Forrest at least looked like a real miner. He skilfully weaved his own rags-to-riches story as he worked the crowd into a frenzy while attacking Rudd, who he suggested was “turning communist” by imposing the RSPT. “Fellow miners, fellow Australians … this day is about your
opportunity to change Australia’s history from where Kevin Rudd would take it – a largely socialist distribution of capital over creation of value,” he said. He also revealed that he had finally secured a meeting with Rudd the next day to discuss the tax.

Forrest then strolled over to the Hyatt to attend the lunch at which Rudd was speaking. His anger had barely had time to subside before
the embattled prime minister began invoking the spirit of Sir John Forrest to justify his own plan to use the RSPT to build infrastructure for future generations. “John Forrest was determined to ensure the great mining boom of the 1890s built enduring foundations for WA’s future,” Rudd told his lunchtime audience. “Forrest supported mining. He supported it strongly but was often opposed by gold
miners of his time. As his biographer Frank Crowley has noted, Forrest wanted to make the prosperity of the present pay for the hoped-for success of the future. This did not endear him to the gold miners of the time … some things never change.” Rudd was brazenly comparing himself to the visionary Sir John, the great-great-uncle whose memory Forrest had long revered. It didn’t appear to be a good
omen for the next day’s peace talks.

Few realised at the time, however, that a desperate Rudd had already decided Forrest needed to be brought onside if there was to be any hope of negotiating a truce in the mining tax war. The 10 June meeting in Perth was a turning point. Rudd invited Forrest to enter confidential talks with his office to seek a solution. After the meeting, Forrest’s tone
was suddenly conciliatory. “I have a prime minister who is listening and who has entered into a process,” Forrest said. “From my perspective, we have much more wood to chop. He was open, convivial and the discussions were detailed. He’s open to a process, and let’s give that a chance.”

Ten days later, Forrest was whisked into The Lodge alongside Stephen Pearce to attempt to broker a solution
to the crisis, which by then was beginning to threaten Rudd’s increasingly chaotic prime ministership. Rudd’s aim was to split the mining industry by finding an outcome that would appease Fortescue but ensure the multinationals still paid the bulk of the new tax. All of a sudden, Forrest was being given the chance to devise a plan that would ensure his own financial future, damage his enemies
and keep Rudd in office. Nine years after his reputation had been shot to pieces and he’d been banished in the wake of the Anaconda debacle, Forrest was now operating at the apex of national power.

Forrest’s original push was to win Rudd’s endorsement for his idea that Fortescue should be able to pay its massive interest bill before the RSPT kicked in. But a series of emails, later released
under freedom of information laws, showed that Treasury officials were violently opposed to this concept because they feared it would skew investment decisions in favour of debt rather than equity. “Collectively, the proposals would ensure that FMG would pay very little, if any, RSPT in excess of existing royalties,” wrote Scott Bartley, Treasury’s principal adviser in the resource tax unit. “No
other ‘normal’ business gets the capital repaid before a tax kicks in – still that is what FMG appears to be asking for.”

Rudd refused to back down on the claim for interest deductibility or the 40 per cent headline rate, fearing he would be crucified by the electorate for giving away too much to the miners. But he was keen to listen to a novel plan Forrest had hastily devised, under which
mining companies would be given tax breaks for their infrastructure spending. Crucially, under Forrest’s plan, such deductions would be available only to miners such as Fortescue that built open-access infrastructure, rather than BHP and Rio, which had barred anyone else from using their railway lines.

The restructured RSPT, as envisaged by Forrest, would also have benefited Fortescue over
its rivals by favouring miners that had recently built their infrastructure. In a briefing note sent to the Fortescue board after Rudd had agreed to the plan, Pearce summarised the impact of the proposal: “In essence, while a headline rate of 40 per cent is maintained, with the concessions negotiated, an effective headline rate of 20 per cent with full royalty rebate has been achieved.”

Forrest insisted he would have sought the agreement of BHP and Rio before signing any deal with Rudd. “My position was that Fortescue would not sign any separate agreement with the government,” he said. “We wanted a solution for the industry. It was my intention to take the principles agreed with Rudd to the industry.” Yet Forrest must have known that BHP and Rio would never have supported the deal.

Back in Perth, Forrest’s allies in the war against the RSPT were gobsmacked when they discovered that the magnate had been negotiating a backroom deal with Rudd. Atlas Iron’s David Flanagan said he knew nothing of the talks and was not convinced the Forrest–Rudd pact would have benefited his fledgling iron ore company. “I am concerned that all of the companies were not at the table and have
not been briefed,” he said. “It’s important to work together.” Another close ally, BC Iron’s Mike Young, said the proposals were not necessarily good for everyone. “What is good for FMG is not going to be good for BC Iron,” he said. A senior Labor government official summarises Forrest’s motivations in pursuing the deal with Rudd: “Twiggy was trying to do a deal that advantaged his own company,
but it wouldn’t have advantaged any of the others.”

The deal with Forrest would not have stopped the advertising campaign against the government, which was driven by BHP, Rio and Xstrata. But it would probably have relieved pressure on Rudd’s leadership for some time. A government official who was familiar with the strategy describes Rudd’s thinking in pursuing the Forrest plan: “We all
thought Twiggy was a cowboy. But when it became absolutely clear there was no deal with the others, and Twiggy was rattling around Canberra, we thought, ‘We have an opportunity here.’ Because of the nature of Twiggy’s business we could write a rule that gives him a big benefit that is not available to the big guys, and which preserves the integrity of the tax. We couldn’t have done a deal with BHP,
Rio and Xstrata because they are the ones paying all the tax. They’re the ones who have the massive cash cow mines where they built the infrastructure ages ago and have just been milking massive windfall profits out of high commodity prices. Making them happy would have killed the tax. For us, it would have been a good story – the newer miners would get a benefit and we’d still get the revenue because
most of the revenue would come from BHP, Rio and Xstrata. Simultaneously, because Twiggy was such a larger-than-life figure and everyone identified him with mining, it was a great win. We’d be able to shake hands with Twiggy, make a change to the policy which was even more favourable for investment and the development of new mines, and have someone who Australians would have thought, ‘If he
is shaking hands with Rudd, it must be okay for the miners.’”

That a multibillion-dollar tax policy was being cooked up in this manner speaks volumes about the frenzied dying days of the first Rudd government. Still, the deal came painstakingly close to being done. Forrest and Pearce first met Rudd and his youthful economics adviser, Andrew Charlton, at The Lodge to discuss the plan on the
evening of Sunday 20 June. After a glass of wine, the talks lasted until the early hours. But the full details still needed to be ironed out, so Forrest and Pearce were invited back to conclude the negotiations the next evening. This was a highly chaotic period in the halls of power in Canberra. Labor MPs had already begun secretly counting the numbers for a coup against Rudd that would install
his deputy, Julia Gillard, as prime minister later that week.

On the next day – Monday 21 June – a huge Chinese delegation led by then vice-president, and future president, Xi Jinping was in Canberra for talks with Rudd and business leaders, including Forrest. The meeting between Rudd and Forrest planned for that night did not occur because Rudd spent several hours longer than scheduled
chatting in Mandarin to Xi. To the frustration of everyone except Rudd, Forrest was asked to come back again the next night to finalise the deal.

But early the next morning, Forrest received the news that the body of his friend Craig Oliver had been recovered from the wreckage of a plane crash in Africa that killed the entire board of Perth-based iron ore miner Sundance Resources. Oliver
had lived around the corner from Forrest in Cottesloe and their daughters attended school together. Forrest flew back to Perth immediately on the Fortescue corporate jet, with the aim of returning to Canberra the following day to consummate the deal. A press conference had been tentatively scheduled for Friday so Rudd and Forrest could front the cameras and hail their breakthrough agreement.

But just as Forrest was preparing to board the plane for Canberra on the Wednesday evening, word began filtering through that Gillard had challenged Rudd. Forrest stayed in Perth, glued to the television. The next day, Gillard became prime minister, citing the RSPT fiasco as a major reason for her decision to seize control of a government that had “lost its way”. Despite his culpability for
much of the RSPT debacle in the first place, Swan retained his job as treasurer and was even promoted to deputy prime minister.

Forrest had come agonisingly close to striking a deal with Rudd, but a series of unrelated events had conspired against him. “If Rudd hadn’t talked to bloody Xi Jinping for four hours on the first night, and if the Sundance plane hadn’t gone down on the second night,
and if Gillard hadn’t moved on Rudd the third night, the deal would have been signed,” says a person familiar with the talks.

In her first press conference as prime minister, Gillard promised that the government would suspend its advertising campaign if the big miners did the same. Amazingly, a truce had been declared within minutes of the press conference. What the new prime minister didn’t
say was that the ceasefire – at least in the opinion of many of the key players – had been pre-arranged with the miners before the coup.

In the days before 24 June, as Forrest attempted to reach an agreement with Rudd, the big miners were simultaneously talking to Wayne Swan and Martin Ferguson, with the aim of reaching a deal of their own. Gillard was kept informed of the progress of these
talks, although she was not directly involved. Under the planned agreement, BHP, Rio and Xstrata would have been able to assess their decades-old mining investments at their current market value rather than their much lower book value, giving them huge financial relief and addressing their concerns over the retrospective nature of the tax.

To what extent Rudd knew of these negotiations –
and whether he would ultimately have agreed to any sort of deal with the majors – remains a matter of conjecture. But several people familiar with the situation are adamant that Gillard and Swan knew they had the big miners onside when they removed Rudd on Thursday 24 June. “[Then ALP national secretary] Karl Bitar had cooked up the idea of the truce,” says one official who was close to the action.
“They had pre-agreed the idea of a truce, that Gillard would stand up and say, ‘I will withdraw the government ads and I ask the mining companies to withdraw their ads.’ I don’t think that was a risk Gillard took – I think it was a pre-cooked deal.”

Within a few days, Gillard had negotiated a brand new tax with BHP, Rio and Xstrata that would be known as the minerals resource rent tax (MRRT),
with an effective headline rate of only 22.5 per cent and generous deductions for existing investments. It would apply only to iron ore and coal, the nation’s two biggest export earners. The MRRT was a massively watered-down version of the RSPT. Despite this, Gillard hailed the deal as a “breakthrough” that proved she was busy fixing the mess Rudd had created. The government’s original forecast
of $12 billion in revenue from the RSPT had been cut to $10.5 billion under the MRRT. It beggared belief, however, that the huge concessions Gillard and Swan had given to the big miners in brokering the peace would cost the government only $1.5 billion over two years.

Forrest, inevitably, was irate at being excluded from the post-coup negotiations on the MRRT. His influence in the corridors
of power had seemingly vanished overnight, and he was especially aggrieved that BHP and Rio had been invited into the prime minister’s office to seal a deal that appeared to suit them at the expense of smaller miners. Forrest claimed the big miners would end up paying very little MRRT because of the generous depreciation allowances they had been given. Swan dismissed this, saying BHP, Rio and
Xstrata would pay 90 per cent of the new tax. But mining analysts at leading investment banks who crunched the numbers were also questioning how the government would ever raise $10.5 billion from what seemed a relatively benign impost.