How’s this from Saul Eslake today:
The resources super profits tax, as originally envisaged, was (among other things) impractical and relied on a commercially unrealistic assumption that financiers would believe a government promise to refund 40 per cent of the costs of failed mining ventures. But its replacement, the minerals resource rent tax, is arbitrary in its application to just two minerals (coal and iron ore); requires complicated procedures to establish the point at which those two minerals should be subject to the tax, and the value of them at that point; and (as we have just seen) leaves the revenue from the tax subject to being hijacked by state governments.
Surely a better and simpler way of procuring for the Australian people as a whole a larger share of the value created by the exploitation of the finite resources of which they are the ultimate owners would be for the federal government to legislate that, for as long as the prices of prescribed minerals are above some level (such as their average in 2004-05), the tax rate paid by mining companies will be, say, 33 per cent, while (for example) the tax rate paid by other companies will be, say, 27 per cent. (This would be a mirror image of the income tax exemption which used to apply to gold mining companies from 1933 – another concession to WA – until 1991.)
It might be necessary to apply some kind of grouping provision to prevent mining companies from diverting income into affiliated entities in order to avoid the higher rate of tax. But that would surely be simpler than the bureaucracy required to establish a brand-new tax – and probably less vulnerable to political criticism on that score as well.
We have spent some time giving Mr Eslake a wrap on this site. And I feel, therefore, that I should reassure you all that we have no deal with the man.
But what a cracking solution he’s offered here. It generates much more revenue for the government out of the mining boom that could be siphoned offshore into an SWF, helping keep down the currency. It probably would slow the boom a little at the margins, but not much. It redistributes a portion of profitability away form the boom sector and towards other parts of the economy, reducing the effects of Dutch Disease captured in Rybczynski’s theorem. In short, it does just about everything that the Ken Henry’s RSPT did in a very simple way.
There’s one thing that it does not do. And that’s get around the accusation of misappropriation and sovereign risk. Because the tax is levied on all profits, derived from all mines, it would be open to the allegation that it was changing midstream the calculus on mines that have long been in operation. And there’d be sure to be a huge bunfight over the trigger point for the raised tax as well.
But compare this to the extravagance of the RSPT design with its complex shared-equity, rebates and uplift rates, which reeked of a kind of virtual socialism. With this tax stabiliser, the misappropriation question would easily be overcome by arguments of broader national interest, that included most other businesses in the country.
Saul’s right, this is politically sellable. In fact, right now, just about every business in the country outside mining would endorse it.
