A POLICY reversal by the Coalition over the mining tax has blown a $12.6 billion hole in its spending plans.
It has emerged that the Coalition leadership met on Friday to reverse its policy of unwinding the superannuation increases associated with the mining tax.
The Herald reported that day that the shadow assistant treasurer, Mathias Cormann, had told a group of superannuation executives a Coalition government would unwind any increases to the super guarantee it inherited.
Senator Cormann confirmed this to the Herald, saying increasing compulsory super would erode people's take-home pay.
Also, it would become so expensive over time that the cost to the budget would be more than the mining tax would raise, meaning it was setting up a structural deficit in the budget.
The superannuation increase hits the budget because money contributed to super is taxed at a much lower rate than income.
The mining tax will help finance an increase to compulsory super from 9 per cent to 12 per cent by 2020. The Coalition has promised to abolish the mining tax if elected.
If the Coalition wins the next election, due in 2013, it would inherit a super rate of 9.25 per cent. The increase would cost the budget only $240 million that year.
But the Opposition Leader, Tony Abbott, and his senior shadow ministers held a phone hook-up on Friday and decided not just to rescind the $240 million super increase it may inherit if elected but to honour the legislation in full and allow the rate to progress to 12 per cent.
Between 2013 and 2020, this will cost the federal budget $12.6 billion, money the Coalition will need to now find from elsewhere because it will not be collecting the mining tax.
In 2020 alone, when superannuation hits 12 per cent, it will cost the budget $3.6 billion a year in lost tax revenue. The mining tax is estimated to make only $3 billion that year.
A spokesman for the shadow treasurer, Joe Hockey, said the money for super would be found through savings to be announced closer to the election.
However, the decision is likely to place even greater pressure on Mr Hockey, who is trying to fund Coalition promises.
Mr Abbott has vowed to abolish the price on carbon but he is still promising people tax cuts and pension increases.
Under Labor's plans, money raised by the carbon tax will fund tax cuts and pension increases as compensation for the increased cost of living.
Mr Abbott is now promising to abolish two taxes - the carbon tax and the mining tax - but keep associated tax cuts.
The mining tax will also fund tax breaks for small business and companies.