As noted by Houses & Holes earlier, ANZ has released new analysis arguing that successive Australian governments have failed to adequately tax Australia’s mining boom, leaving Australians short-changed:
”The MRRT only raised $200 million [or 5 per cent of the amount originally estimated] in 2012-13 and is estimated to raise just $100 million in net terms in 2013-14. The current government is attempting to remove the MRRT altogether.”
The petroleum resource rent tax, introduced in 1988, is forecast to raise just $2 billion. The Commonwealth’s total revenue base is $380 billion.
The under-taxing of resources is captured neatly by the next chart from the Henry Tax Review, which acknowledged that “current charging arrangements distort investment and production decisions….. they fail to collect a sufficient return for the community because they are unresponsive to changes in profits”:
And now the situation will be made worse by the Abbott Government’s abolishing of the mining tax, which will enable its billionaire mining mates to continue collecting their unearned windfall in economic rent.
The sad truth is that Australia’s under-taxing of resources is also a reason why Australia has one of the highest income tax and company tax burdens in the world, and why our tax system is broadly inefficient.
As noted many times before, the Henry Tax Review also showed that personal income and company taxes have “a high marginal excess burden” (i.e. a big loss in consumer welfare relative to the net gain in government revenue). This is because personal income taxes discourage labour force participation, whereas company taxes are “applied to capital, which is highly mobile” (see next chart).
By contrast, taxes on resources (represented above as the Petroleum Resources Rents Tax or PRRT) have effectively zero efficiency loss, since they are applied to a tax base that is completely immobile – land.
With the resources sector already under-taxed, and the Abbott Government removing the mining tax, Australians are now facing a narrowing tax base, and an increasing tax burden on relatively inefficient personal income taxes, whose share of federal revenue is forecast to rise inexorably over the coming decade, according to the Australian Treasury (see next chart).
This is precisely what the nation does not need in the face of an ageing population, a growing proportion of retirees (and age-related spending), and a falling worker share. It also will harm the nation’s productivity, as the tax base is shifted towards less efficient sources.
Had Australia managed to follow Norway’s lead and tax the resources sector appropriately, it could have afforded to reduce both personal income taxes and company taxes – which would also have improved the competitiveness of the non-mining economy – or provided the nation with the means to fund important national programs and projects, which could have improved both equity and productivity.
Talk about shooting yourself in the foot!
