Home > Economic policy > The mountain labored …

The mountain labored …

May 2nd, 2010

… and brought forth a mouse

That’s my initial reaction to this ABC report of government’s response to the Henry Review of Taxation. All that effort, five months of waiting and we get a Resource Rent Tax and some tweaks to superannuation and company tax. Just about everything else has gone into the too hard basket.

An intriguing exception, it seems, is the proposal for congestion charges to replace existing road user charges, which has been neither accepted nor ruled out. Judging by the speed at which the Bligh government ran from the idea, I’d have thought this one would be very much too hard (if not as much so as the most sensible measure in the whole list, replacing existing burdens on homebuyers with a land tax paid by homeowners). I can’t see that happening, but I’m surprised to see it still a live option.

The Resource Rent Tax is a step forward, especially in the current environment where a booming minerals sector is placing all kinds of pressure on other sectors. And, I guess, it wouldn’t have been politically feasible a year ago, when the miners looked to be in trouble. So, I guess the delay hasn’t cost too much, and the Henry Review gives future governments an agenda that will last them a while.

When I get a bit more time, I’ll try and respond properly to the Review. Obviously, there’s no rush.

Stephen Long has a similar view

Categories: Economic policy Tags:
  1. Tony G
    May 2nd, 2010 at 15:50 | #1

    You can read it all here;

    http://taxreview.treasury.gov.au/Content/Content.aspx?doc=html/home.htm

    I like this bit;

    “In time the following taxes should be abolished and their revenues replaced by taxes applying to the four robust and efficient tax bases:
    insurance taxes;
    payroll tax;
    property transfer taxes;
    stamp duties on the purchase of motor vehicles;
    resource royalties, replaced by the rent tax;
    luxury car tax;
    the tax on superannuation contributions in the fund;
    income taxes on all government pensions, allowances and benefits; and
    fuel and vehicle registration taxes, if replaced by more efficient road user charges. “

  2. carbonsink
    May 2nd, 2010 at 17:29 | #2

    Pathetic.

  3. TerjeP (say Taya)
    May 2nd, 2010 at 17:35 | #3

    Taxing pensions and benefits makes more sense than means testing. The tax free threshold should however be high enough that those on benefits pay no tax unless they have other income.

  4. May 2nd, 2010 at 18:28 | #4

    Pr Q said:

    The mountain labored …

    This will surely go down as the epitaph of the Rudd government, the most anti-climactic policy operation in human history.

    I think I have been making this point since before he was elected. Its not as if he didn’t drop some broad hints, as in “I am a conservative”.

    No one can deny that it s politically successful. So people obviously want a government that talks up revolution but delivers little more than cabinet reshuffles.

  5. Hal9000
    May 2nd, 2010 at 18:32 | #5

    Jack, the quote is ‘I am a _fiscal_ conservative’ (emphasis added). Otherwise it’s difficult to disagree.

  6. Peter Whiteford
    May 2nd, 2010 at 19:04 | #6

    Terje said: “The tax free threshold should however be high enough that those on benefits pay no tax unless they have other income.”

    In fact, now people on benefits without other income pay no income taxes and it has been thus for more than 20 years. The low income tax offset and pensioner tax offset means that their effective tax thresholds are higher than pension and benefit rates.

    What this means is that increasing the tax threshold helps everyone except welfare beneficiaries.

  7. May 2nd, 2010 at 19:30 | #7

    So more compulsory super contributions – to be swallowed up and spat out by heavily reduced profits from the mining sector. At least that’s what it looks like to me. I suppose it’s one way to encourage more selling off all our resources to overseas companies.

    It’s more inducement to retire as soon as I can. What a waste of an opportunity.

  8. Louis Hissink
    May 2nd, 2010 at 19:36 | #8

    @TerjeP (say Taya)
    Terje,

    State pensions are funded “from” taxation, so taxing a tax, which is what your proposal is, is simpy nonsensical.

    Those on benefits should never have to pay tax as their income is derived from tax. Same for public servants, they too receive their wages from the taxes imposed on the private sector. Taxing them is also a tax on a tax.

    And Quiggin describes climate sceptics as delusional.

  9. May 2nd, 2010 at 19:45 | #9

    The government is approaching an election in which it is likely to strengthen its grip on authority, unless it makes a mistake. If the terms of the game don’t change, it wins the senate and the chance to set its own agenda.

    Big reform proposals now change the rterms of the game without there being any prospect of a significant upside in August. Doing things that offend nobody inclined to vote for them and pelase some, and gives Abbott the chance to be cast as ignorant spoiler gives it everything it wants. The election is probaly less than three months away.

    What was Rudd to do?

    This is not an endorsement of the choice, but it is an explanation, especially since Abbott has made clear that he will try to obstruct this too and with Fielding and Xenophon onside can do so. As with the ETS, what possible point could there be to pressing ahead now?

    This is pretty much what I would have advised had my job been to get the Rudd government re-elected with a senate majority rather than to give people interested in public policy a warm inner glow.

  10. stockingrate
    May 2nd, 2010 at 21:07 | #10

    The Super Profits tax announcement will have permanently impaired the sovereign risk rating of the country among miners world wide. A gift for Africa, Mongolia, Indonesia, South America, Canada etc. This genie is out of the bottle whether or not a cent of tax is raised.

    I haven’t seen any mention of debt levels or current account balance by the government today – unsurprising but disappointing nevertheless.

  11. Ken Lovell
    May 2nd, 2010 at 21:49 | #11

    The chances that a current public servant would ever recommend wholesale replacement of long-standing practices were always remote. Too many of his friends and colleagues have their professional standing embedded in the status quo (unless we are to believe that Peter Costello habitually rode roughshod over his Treasury advisers, which seems unlikely).

    The ‘review’ will presumably give cover to a couple of things Treasury and the government have always wanted to do, that might be a bit controversial. The end.

  12. Ernestine Gross
    May 2nd, 2010 at 22:18 | #12

    @stockingrate

    Timely reminder that the rating agencies are still over-rated.

  13. TerjeP (say Taya)
    May 3rd, 2010 at 02:39 | #13

    Louise – it’s about practicalities. Are you suggesting we ought to have a mechanism to exempt pensioners from GST. If not then you are not being consistent. If yes then you are into complexity in a way that I’m not.

    Peter – a fair point. However these offsets do create some perversion in the effective marginal tax rates further up the income range and it would be better if they were replace by a higher tax free threshold with a modest effective tax cut flowing to others. If you really can’t stomach the latter then an increase in tax rate just above the tax free threshold would offset most of the effect but still leave a system that was simpler, fairer and more transparent.

  14. TerjeP (say Taya)
    May 3rd, 2010 at 02:48 | #14

    p.s. Louise – if you are serious in your suggestion that the salaries of public servants should be exempt from income tax then I think it is you that is delusional. It is far better to have some churn than the perversion such an exemption would usher in.

  15. conrad
    May 3rd, 2010 at 07:16 | #15

    “It’s more inducement to retire as soon as I can.”

    I guess it depends how old you are, but I imagine for many people not close to retirement, it either means dying with a large amount of money, or frittering it away on things far less useful to them than that which they could have used the money on before 70, or whatever the age will be that the government finally lets you get your hands on it in a few decades time.

  16. Alice
    May 3rd, 2010 at 07:33 | #16

    Re the big hit to mining – I have no objection at all. They along with other industries have probably been removing the great majority of profits to overseas anyway. What worries me more is that the states are still going to get the mining royalties but the Feds are going to reimburse the miners…..now doesnt this reduce the tax on Mining giants anyway…and where is the tax hike on the financial giants and why are we still feeding them so much in super? Super dooper super scoopers and when will we ever get our hands on it. Where is my choice to manage my own super? I dont trust either the govt, the funds managers or teh share market. No extra from me – not a single cent.

  17. Alice
    May 3rd, 2010 at 08:15 | #17

    and Ken Henry is not happy.

  18. Fran Barlow
    May 3rd, 2010 at 10:01 | #18

    @Alice

    As I understand it, the idea is to tax the miners when the profits are above normal. This is an attempt to deal with Dutch Disease style problems. I presume that the Commonwealth only reimburses them out of the total tax take so if it falls below the royalty level then presumably the miners don’t get reimbursed.

  19. Colin
    May 3rd, 2010 at 10:54 | #19

    Congestion charges are a simple solution to traffic congestion, especially if the charge is adjusted in real time according to the amount of congestion. Motorists might complain about “another big tax”, but the flipside would be No More Traffic Congestion.

    Road space is a scarce resource, and at the moment it is rationed Soviet-style; with a queue (i.e., traffic). That queue imposes great costs on the whole society.

  20. Fran Barlow
    May 3rd, 2010 at 11:02 | #20

    Distance and road intensity-based pricing is something I’ve favoured for a long while.

    I’d like the calculus to take account of emissions including Co2, tare, driver competence and compliance and existence or absence of actively serviced parallel public transport corridors in the time travelled, but the above would be a reasonable start.

    I’d be happy for the value of this revenue to be put into removing other vehicle operation imposts and excises. I’d also like real time infringement cautions and notices, ignition lock out for PCA and remote vehicle shut down in the case of theft or criminal flight using a motor vehicle.

    Were I doing the spin for the measure I’d avoid calling it congestion charging. that’s much too negative. I’d call it something much more positive such as the open roads initiative which puts the goal up front.

  21. Ernestine Gross
    May 3rd, 2010 at 11:11 | #21

    @conrad

    Your comment is one of the most insightful I’ve read for a long time. Individuals’ life cycle is not in most of these policy models. The overall idea seems to be: We make the decisions, individuals carry the responsibility.

    My comment is not meant to signal support for naive market economics or individualism.

  22. Ernestine Gross
    May 3rd, 2010 at 11:20 | #22

    @Colin

    Fully concur, Colin, assuming ‘society’ lives in a world consisting of 1 location with 1 road and everybody has equal access to this road, physically and financially, such that every member of this society has a fair choice between using the road and paying the congestion tax or staying at the sub-location point.

    Australia is physically much too big to fit into the model and there is too much inequlity in terms of financial wealth as well as alternative modes of transport in relation to the necessity of transport.

    Non-price rationing is not something unique to the Soviet Union. It is part of mainstream economics.

  23. silkworm
    May 3rd, 2010 at 11:25 | #23

    The most significant aspect of the package from an environmental view is the dropping of the CPRS. I am wondering if the increase in mining tax is intended as a substitute for the CPRS, as the coal companies are being now forced to cough up their due. This is a question that perhaps only Professor Quiggin could answer, but to what extent does the new mining tax set a de facto carbon price?

  24. Ernestine Gross
    May 3rd, 2010 at 11:35 | #24

    @Fran Barlow

    Your list of desirables may be incomplete. Surely it will be necessary to check whether drivers have done up their shoelaces correctly because there is the risk that an incorrectly knotted shoelace gets caught on the accelerator. A proper auditing system is to come with it, I suppose. (Irony alert).

    Getting ‘open roads’ may still be the outcome of your planning, namely when people decide to go bush.

  25. Alice
    May 3rd, 2010 at 11:38 | #25

    Can the resource rent tax details be sent to the IPA with a with compliments slip?

  26. Fran Barlow
    May 3rd, 2010 at 12:07 | #26

    @”Ernestine Gross”

    Surely it will be necessary to check whether drivers have done up their shoelaces correctly because there is the risk that an incorrectly knotted shoelace gets caught on the accelerator.

    Here I concede you have the jump on me. I was completely unaware that improperly tied shoelaces were a significant factor in road traffic injury and/or death. If you have some figures on the associated harm and a method for ensuring compliance with an acceptable standard we could cost the program against risk and calculate the comparative return on investment with other road safety programs and, after we have specified the budget see how much of it should be done.

    That sounds like a tremendously enlightening exercise. Can I leave it with you to assemble the data and propose the program design and costings? As a “PhD in mathematical economics”, this exercise will no doubt be a walk in the park …

  27. TerjeP (say Taya)
    May 3rd, 2010 at 13:07 | #27

    From my limited reading the resource tax will be 40% on all profits that exceed a 6% return on capital. I’m not sure why mining is being picked on. Is mining evil or some such thing?

  28. Fran Barlow
    May 3rd, 2010 at 13:16 | #28

    @TerjeP (say Taya)

    I’m not sure why mining is being picked on. Is mining evil or some such thing?

    Don’t be silly. It’s a question of flogging off a limited resource — typically an ore. Once that is gone, that’s it. This makes it quite unlike other exports, which may well earn windfall profits — e.g. tourism, education services — but which are inexhaustible.

  29. Ernestine Gross
    May 3rd, 2010 at 13:26 | #29

    @Fran Barlow

    Fran, and other proponents of congestion tax (with or without having the certified skill of doing up shoelaces as an argument in the function), I am asking you to explain how a congestion tax is going to solve the “grid-lock” traffic problem anticipated by residents and the local government (Council) in Pittwater as a consequence of Meriton’s building project (which includes all the mod-cons, or at least most of them which I remember as arguments in another community planning function I’ve read on this blogsite):

    http://www.smh.com.au/nsw/meritons-pittwater-plan-attacked-20100502-u1j4.html

  30. silkworm
    May 3rd, 2010 at 13:46 | #30

    I’m not sure why mining is being picked on. Is mining evil or some such thing?

    Yes. Yes it is. The coal mining parts especially. They produce massive carbon pollution. Most mining is carbon negative, but other parts, like hot rocks, are as close to carbon positive as one is likely to find. I think that is why Rudd has targeted geothermal exploration for reimbursement under the Resource Exploration Rebate (RER).

  31. Ernestine Gross
    May 3rd, 2010 at 13:54 | #31

    @TerjeP (say Taya)

    If its any consolation, the contributors to compulsory superannuation lost about 2% in value on the mining component of their portfolio after an initial relatively small overreaction. But future generations can make their own experience as to the meaning of the phrase “saving for retirement” when their generation specific events in securities markets occur.

    http://www.asx.com.au/asx/statistics/indexInfo.do

    Some ‘investors’ in shares may remember that the resource rent tax didn’t start at the same time as the tax increase on cigarettes, but that is no consolation for those who draw on their super now.

    Given the current regulatory framework of superannuation , the term compulsory superannuation contributions can be translated into the compulsory purchase of a financial gamble that prevents you to participate in a housing boom or in huge, albeit temporary, rate of return differences between term deposits and your efficient industry fund, guided by over-rated rating agencies, while not allowing you to have interest rate deductions on your home loan, which you managed to get despite of all the disadvantages.

  32. TerjeP (say Taya)
    May 3rd, 2010 at 14:02 | #32

    Fran – I understand the concept of a royalties but this is a tax on profits. And why exempt miners that are generating a bad return on capital? I can’t follow the logic.

  33. Donald Oats
    May 3rd, 2010 at 14:26 | #33

    I think this is exactly the reason someone created the expression “damp squib”.

  34. Fran Barlow
    May 3rd, 2010 at 15:03 | #34

    @Ernestine Gross

    I am asking you to explain how a congestion tax is going to solve the “grid-lock” traffic problem anticipated by residents and the local government (Council) in Pittwater as a consequence of Meriton’s building project

    Clearly, solving “gridlock” entails a lot more than simply having a suitable road usage-based regime (though this would help since it would lead over time to a less car-intensive city). Right now, it is marginally cheap (in terms of comfort and convenience relative to public transport or car pooling) to drive a car and relatively expensive to buy one. Intensive vehicle usage helps lower the cost of ownership per unit of usage. It would be far better to have relatively cheap cars that were relatively expensive to operate (and thus gave everyone an incentive to use the resource sparingly i.e. when there was a persuasive case for trading expense for convenience).

    With the funds generated one could build quality public transport, (effectively prejudicing the relative convenience of car usage). The Pittwater area is actually fairly poorly served. There are buses of course, but no train service at all. Rapid ferries for commuters might be feasible, especially if people started giving up intensive car usage. Smaller shuttle buses that circulated during the day and early evening carrying people between the major developments and the business districts could also be operated.

  35. Fran Barlow
    May 3rd, 2010 at 15:07 | #35

    @TerjeP (say Taya)

    And why exempt miners that are generating a bad return on capital?

    Because they are less able to pay? And 6% is not a bad return. It’s just not windfall. Let’s be clear. The community is entitled to a share of windfall returns and to apply these funds in ways that underpin other sectors of the economy.

  36. James
    May 3rd, 2010 at 16:13 | #36

    @TerjeP (say Taya)

    It’s a rent tax. As has been known since Ricardo and endorsed by every economist since him (including Milton Friedman and John Howard), a tax on rents (or economic rents) falls only on landlords and does not distort the rest of the market.

    Miners, like landlords, make money by exploiting their exclusive control of a pre-existing resource (mineral deposits, or land) which would be there whether they existed or not. There is a strong argument that those value of those resources are the proper possession of the entire community which is their ultimate owner and (in a sense) the creator of their value (although one could argue that in Australia and other countries with an acknowledged indigenous population, it is the Indigenous population who should be receiving the benefit from land access).

    This is distinct from the money landlords, miners etc make by investment and improvement on the land; eg constructing a house, improving the available information about a piece of land by assessing its mineral worth, etc. This is why various exploration costs are being rebated, as are miners who get a poor return; because the basis of the tax is to tax the profits they make by making a claim on common resources, not the profits they make by improving those resources to the benefit of the rest of us (or, in the case of the poor return, providing information that that particular deposit is not in fact worth much). As I understand it, current state royalties are distortionary because they tax the efficient use of the resources rather than their monopolisation.
    For more on the economics of this, check out the work of Mason Gaffney, and for a practical example, Alaska’s Permanent Fund, which is based upon distributing oil mining revenues to the population as royalties.

  37. Chris Warren
    May 3rd, 2010 at 17:46 | #37

    Taxing profits is the most equitable form of taxation. Everything else disrupts the economy.

    It seems odd that one industry should be the focus, as i would have hoped that all super profits are highly taxed, particularly international education, and banking.

    If you are going to live under capitalism you have to ensure that those squeezed out of prosperity by capitalism, are protected, without adding to debt, and ending up like Greece, Spain, Italy and UK.

  38. charles
    May 3rd, 2010 at 20:49 | #38

    I really don’t understand the “they could have done more” thought bubbles. They have what could be a solution to the “dutch disease” problem. They have forced us to save more, which will assist in generating locally the capital we need while taking pressure of inflation, and they have done it in a way which gives them some chance of being re-elected.

    To my mind they have at least two great achievements; I’m sure many would say three.

  39. TerjeP (say Taya)
    May 3rd, 2010 at 21:06 | #39

    James – I don’t think John Howard was an economist. Otherwise thanks for the info.

    I’m still on the fence on this one for the moment. However some thoughts. It seems to me that mining rights ought to be sold by auction or else leased and the price the community extracts determined ahead of time rather than after the event. I suppose they could be leased on terms that entail a profit share arrangement similar in form to this new tax. The only repugnant thing is changing the price by fiat after the risks and investments have been made. Given that mineral rights are government owned it isn’t clear to me why this rent needs to be extracted as a tax. Why can’t it be extracted via normal commercial arrangements.

  40. TerjeP (say Taya)
    May 3rd, 2010 at 21:12 | #40

    Chris – Taxing profits drains successful companies of investment capital and favours those companies that can endear themselves to the finance sector. So long as profits are reinvested they ought to be exempt from taxes. Of course shareholders would still be subject to income tax on dividends and capital gains tax on share sales.

  41. Chris Warren
    May 3rd, 2010 at 22:38 | #41

    @TerjeP (say Taya)
    There is a bigger picture to this.

    Taxing anything drains funds which in the case of profits reduces investment, but on the other side, not taxing profits leaves consumption starved – so consumers increase debt.

    By taxing profits, society gains funds to balance consumption either through State expenditures, or through transfers, salaries and pensions etc.

    Having reasonable consumption funds ensures that, when business invests, it can find customers able to purchase goods and services – with money, not debt. Minimally taxed super profits disrupt this balance.

    Reinvestment of profits needs to be matched with precisely the same growth in consumption. So if consumption is taxed, and wages are taxed, and company income is taxed, then there is no option, profits must be taxed too. Otherwise we end up in a spiral of debt.

    Most profits emerge out of degrees of monopoly and when markets are not in equilibrium. High profits generally signal a degree of black market and excessively high prices, often engineered by market power or cartels.

    Except for windfall gains, profits only exist where a factor of production has not received the same share in its own productivity as the profiteer. There are obvious losses in efficiency here.

    But Rudd has pointed to a third dimension – Rudd claims that most of these super profits are extracted by foreign companies. So even on this simplistic level, Australia wins through taxing super profits.

    The only complaint is why mining and not other super profits? There is no answer to this.

  42. Alice
    May 3rd, 2010 at 22:49 | #42

    If the only way the country can get a share of the mining profits before it winds its way to a tax free haven in Bermuda, Barbados or the British Virgin Islands (where it doesnt even help the poor in the global economy) – then tax it to the hilt on the way out the door.

  43. Alice
    May 3rd, 2010 at 22:56 | #43

    @Fran Barlow
    You say (about Ernestine)
    “Can I leave it with you to assemble the data and propose the program design and costings? As a “PhD in mathematical economics”, this exercise will no doubt be a walk in the park …”

    No Fran you cant and yes it would be a walk in the park for Ernestine but for the fact that you could do with the research skills. They are in very short supply along with your manners…but then maybe thats what high school teachers do – try to treat adults like children.

  44. John H.
    May 4th, 2010 at 00:11 | #44

    but then maybe thats what high school teachers do – try to treat adults like children.

    Yeah, I call it Teacher’s Syndrome because a number of people I know have made exactly the same observation. All occupations can create “syndromes”, aspects of behavior that are carried from the workplace to the social sphere. A friend of mine told me an example of this. He was in a local pub having a few drinks and heard a man having a discussion with 2 females. After watching him a bit he walked up to him and said asked if he was a teacher. The answer was yes. My friend could tell from the mannerisms and attitude of this bloke that he was a teacher. Teacher Syndrome!

  45. Ernestine Gross
    May 4th, 2010 at 00:22 | #45

    Fran Barlow :@Ernestine Gross

    I am asking you to explain how a congestion tax is going to solve the “grid-lock” traffic problem anticipated by residents and the local government (Council) in Pittwater as a consequence of Meriton’s building project

    Clearly, solving “gridlock” entails a lot more than simply having a suitable road usage-based regime (though this would help since it would lead over time to a less car-intensive city). Right now, it is marginally cheap (in terms of comfort and convenience relative to public transport or car pooling) to drive a car and relatively expensive to buy one. Intensive vehicle usage helps lower the cost of ownership per unit of usage. It would be far better to have relatively cheap cars that were relatively expensive to operate (and thus gave everyone an incentive to use the resource sparingly i.e. when there was a persuasive case for trading expense for convenience).
    With the funds generated one could build quality public transport, (effectively prejudicing the relative convenience of car usage). The Pittwater area is actually fairly poorly served. There are buses of course, but no train service at all. Rapid ferries for commuters might be feasible, especially if people started giving up intensive car usage. Smaller shuttle buses that circulated during the day and early evening carrying people between the major developments and the business districts could also be operated.

    Yes, Fran, if the world would be a different place then you would have something to say. As it stands, you did not answer the question.

    You actually missed the main point. My question pertains to a real life problem. If you were to re-read the question and the article, the problem is not “solving a grid-lock problem”. The problem is how to solve an anticipated grid-lock problem. There is an obvious answer which you totally missed. A solution is not to allow the development! Since there is no congestion tax solution, it is the only solution.

    Sorry Fran, it is an F.

  46. Freelander
    May 4th, 2010 at 02:39 | #46

    One thing that disappointed with the Henry review and the government’s response, is the absense of taking the massive tax expenditures in the form of tax exemptions enjoyed by outfits like the IPS and the CIS. I was not only looking forward to taking away that tax exemption from them but to the imposition of a great big tax on them.

    As a matter of public policy, it would be a great idea if the government imposed a great big revenue neutral tax on all forms of funding for the IPA, CIS and their ilk. By revenue neutral, I mean a tax so onerous that their funding would dry up and hence the government would raise no revenue from the tax. Then the tax would achieve its public policy object of delivering to those in the IPA, CIS and others the freedom of speech enjoyed by the wider community.

    Yes. We should fight hard for those poor souls in the IPA, CIS, and so on, and help deliever the opportunity of freedom of speech to them. They may not use it; they may be completely unused to freedom; neverthess it is a treat we really ought to work hard to give them.

  47. Alice
    May 4th, 2010 at 07:01 | #47

    @Freelander
    Couldnt agree more Freelander – its in line with Ernestine’s suggestion to tax spin as well. Give the people on the boards of the IPA and CIS the old one two…once with the resource rent tax and another with the spin tax. The more deliberate and misleading the spin the higher the tax. They wouldnt last a week and we would be well rid of them.

  48. James
    May 4th, 2010 at 10:28 | #48

    @TerjeP (say Taya)
    I know John Howard wasn’t an economist, but the sentence was too awkward to construct otherwise :)

    Auctions for limited time-period leases are an often-proposed method of getting the best and fairest value from mineral leases and other such resources. They do however have a problem in that the value of the lease can’t really be determined ahead of initial investment in exploration, drilling, etc, so the bidders are blind to the real value, which makes for poor price setting. If that exploration is done by a private company they will want first rights on the resources and if by the government it’s a massive sunk cost to the taxpayer, since mining companies won’t bid on ground that has been assessed as poor value.

    I think a good thing about the resource rent tax that has been proposed is that it represents a way to lower risk and uncertainty in the mining industry, which has always been a bit of a randomly distributed high-risk, high-reward area. Because the govt will rebate exploration costs and not tax low profits, it removes a lot of the risk and randomness, and in exchange creams off the “super profits” of the high rollers who strike it rich. My guess is that this (and the de facto rationalisation of state royalties) is why the govt thinks the tax will not discourage investment in the sector. Offshore oil and gas has had the same sort of tax for a long time and is still profitable

    As for changing the price “by fiat”, if you can call winning an election and going through a long tedious public inquiry process “fiat”, well that’s pretty much standard sovereign risk. Any competent economist of almost any school will always recommend rent taxes if asked for their opinion about tax regimes and so this has been on the cards for the mining industry for quite some time, and should have been factored into their forward planning already.

    As for “standard commercial arrangements”, the problem is that land and natural resources are fixed and immobile factors of production which do not have a natural price, in the sense that there is no input cost to creating them but no more can be created. You could argue that their natural price is zero (they cost nothing to produce) or infinite (there is a fixed supply which cannot be increased no matter how high the price rises). A standard market will not therefore arrive at a price which reflects “the fundamentals” in the way the price of other commodities does (Hence the regular cycle of property booms and slumps).

    You might be interested in checking out some of the literature on Geolibertarianism, which I would think would be particularly attractive to Australian libertarians given our abundance of natural resources.

    @ chris: why mining and not other super profits? Marxists also recognise that land and natural resources have some unique characteristics which cause prices to deviate from labour values in rent-dependent industries. Check out the literature on Differential Rent and David Harvey’s work.

  49. Freelander
    May 4th, 2010 at 11:30 | #49

    Why mining and not super profits more generally?

    Because mining’s super profits in this case are not simply quasi rents but are sourced in their access to resources which are owned by the Australian public.

    Humorously, mining interests are talking about how higher tax will impact on their ‘competitiveness’ and will cause them ‘to go offshore’. Great spin.

    Well let them. If they can find it cheaper to extract Australian resources from the Australian ground from mines set up in distant countries, then let’s see them try. But the moment they move, underground, into Australian territory as they try, they will be hit with Australian taxes for access to those resources. When they talk this kind of rubbish they really take everyone for a fool!

  50. TerjeP (say Taya)
    May 4th, 2010 at 12:54 | #50

    James – I know about geolibertarianism. But thanks anyway.

    Chris – we are too far apart in our outlooks to resolve it in a set of short comments. Normally I might try but today I’m resigned to us disagreeing. In short I don’t buy the notion that tax transfers stimulate production. It’s perpetual motion machine guff.

  51. silkworm
    May 4th, 2010 at 13:58 | #51

    I know about geolibertarianism. But thanks anyway.

    What a glib dismissal.

  52. May 4th, 2010 at 19:58 | #52

    @”Alice”

    You and I both know “Alice” that “Ernestine” would struggle to model a cost-benefits on implementing an improperly tied shoelace abatement program for car occupants even if “Ernestine” really did have a PhD in mathematical economics.

    Inventing sockpuppets to back you up is totally lame … and a giveaway about where your mind is at.

  53. Ernestine Gross
    May 4th, 2010 at 22:43 | #53

    Fran Barlow :@”Alice”
    You and I both know “Alice” that “Ernestine” would struggle to model a cost-benefits on implementing an improperly tied shoelace abatement program for car occupants even if “Ernestine” really did have a PhD in mathematical economics.
    Inventing sockpuppets to back you up is totally lame … and a giveaway about where your mind is at.

    Fran, do you know Alice?
    Fran, do you know Ernestine?

  54. May 4th, 2010 at 22:55 | #54

    @Ernestine Gross

    Fran, do you know Alice? Fran, do you know Ernestine?

    You’re self-othering now? Hmmm

  55. Ernestine Gross
    May 5th, 2010 at 06:38 | #55

    @Fran Barlow

    No.

    Back to my question to you:

    Do you, Fran, know Alice?
    Do you, Fran, know Ernestine?

  56. Alice
    May 5th, 2010 at 07:45 | #56

    @Fran Barlow
    Fran is little but a flame thrower and a disseminator of factless misleading pro nuclear diatribes. I though flames were supposed to be deleted. I dont know Ernestine but I use no sock puppets and I am no-one else’s sock puppet, and it would be fairly obvious to all (except apparently Fran) that Ernestine and my posts are so different that we are different posters.

  57. Alice
    May 5th, 2010 at 07:47 | #57

    Utterly ridiculous.

  58. Ernestine Gross
    May 5th, 2010 at 09:29 | #58

    @Alice

    I am certainly not a sock puppet. My impression of your posts is that you speak from the heart about matters of concern to you, without pretence, and you don’t like people bullying others. I don’t know you personally.

    I have read JQ’s blog since 2005 and my comments are mainly restricted to Economics and Finance threads, unless someone tries to integrate my name into their story, creating a false image. Fran Barlow’s efforts to this effect is the second major episode of this type in about 5 years.

    My questions to Fran are straight forward and they are amenable to a yes or no answer. She avoided these questions by asking another one. I answered her question. I am still waiting for her answers to mine.

  59. Alice
    May 5th, 2010 at 20:01 | #59

    @Ernestine Gross
    Ernestine – yes I do speak from the heart and not a script.
    Yes Fran has avoided many questions that call on her to account (whether it is statistics, whether it is flames she creates about others, whether it is simply subjective statements made).

    There are few of Frans responses that one could give any credibility to but I note she is still highly verbose in JQs threads. I am completely amazed (and somewhat disappointed that Fran’s flames are not deleted or issued with a caution at least).

  60. melanie
    May 5th, 2010 at 21:06 | #60

    My guess is that they’ve calculated that they can get the resource rent tax through and they shouldn’t try to do too much in one go. It will be popular in an election year – I haven’t heard much economic argument for it, only emotive ones. I would await further roll out of Henry’s recommendations in the next term.

    On the other hand, maybe I’m being too optimistic ;)

  61. Alice
    May 5th, 2010 at 22:43 | #61

    @Ernestine Gross
    And Ernestine – just keep contributing your area of expertise…I dont have such expertise but I dont pretend to either and if you make sense to me (which is half the battle in economics isnt it?) then you are indeed communicating for a worthy cause.

    The reason you make sense to me (and Fran makes no sense at all) is because I have some knowledge of economics over many years of teaching and readings – certainly enough to discern a fake or superfical user of economic terms from someone who has a deeper understanding like you.

    I am a translator Ernestine from Professor and Lecturers somewhat higher than students who are somewhat lower, as always, on the knowledge scale. I waste my translating skills here…where apparently those without much objective, unbiased or deep reading can use / misuse economic terms freely. Im afraid it has already added to my economic cringe and I really dont know how JQ just doesnt throw up his hands and collapse the whole blog at times!!

    Im convinced it must be light distractive reading for him (like watching world of warcraft??)?

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