Home > Economics - General > Some thoughts on Resource Rent Tax (updated)

Some thoughts on Resource Rent Tax (updated)

May 10th, 2010

I’m going to be in the Budget lockup tomorrow, so I probably won’t be posting much after this. So, rather than polish it up, I’m going to bang out some thoughts on the Resource Rent Tax proposal, the main element of the Henry Review adopted by the government. The shorter version: the Tax is a good idea, and the criticisms we have seen are what you would expect from rent-seekers seeking to protect their rents.

The central arguments in favor of the RRT proposal are intertwined, and I’ll try to put them together in coherent way

* The basic efficiency argument: Since mineral deposits yield super-normal profits to those who have the right to exploit them, a tax on those profits will not lead to less investment – the profit will still be enough to induce investment

* The economic equity argument. Compared to almost any other tax we could impose, the burden of the RRT falls least on low-income Australians and most on high-income investors, many of whom are foreigners

* The legal equity argument. In Australia, mineral resources are, and always have been, owned by the state, representing all Australians, and not by individuals. So we should seek to maximize the return on our own assets.

* The political economy argument. Ever since I can remember, and probably before that, mining companies have been threatening to pack their bags and go overseas. They’ve made these threats when they were upset about tax policy, about environmental restrictions, about Aboriginal land rights, about union wage demands and work practices and when they were in a bad mood for no particular reason. But, even though lots of Australian industries have disappeared, or contracted drastically for a range of reasons, the miners are still here. The reason is obvious. They can leave, but they can’t take the minerals with them. It’s precisely this immobility that underlies the case for RRT

In practice, no tax works exactly in the way the textbooks suggest. A tax designed to fall on super-profits is bound to fall, to some extent, on ordinary returns to such activities as exploration and the development of mineral resources. But this does not significantly weaken the case for the RRT, for a number of reasons.

* Timing. In the ideal case, it does not matter when a rent tax is introduced. But given that there will be some tax on ordinary profits, it makes sense to introduce the tax at a time when profits are buoyant. It’s hard to imagine a better time than now.

* Macroeconomic arguments. The standard analysis implicitly assumes stable full employment. But, in reality, the economy fluctuates, and periods of high profitability in mining tend to be associated with booms in the economy as a whole. Under these conditions, an RRT is strongly countercyclical, since it raises a lot of revenue in booms and much less in recessions. And to the extent that it does affect activity in the mining sector, the countercyclical effect is enhanced. If the RRT constrains mining activity in boom times, more minerals will be available when conditions are not so strong, and ther are less super profits to be taxed.

There is, finally, a purely political argument for the government to stick with the RRT as announced. Having caved in on a range of issues, and most notably on the ETS where the mining lobby was prominent among the opponents, the government has to show some spine here.

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  1. Donald Oats
    May 10th, 2010 at 19:29 | #1

    Yes. Agree.
    Yes, agree.
    Yes, agree.

    One question though. We often take the “us Australians own the minerals” tack, which is perfectly fine and reasonable, but how does immigration fit the picture? One year the “us” is 16 million mouths to feed, then suddenly it is nearly 22 million mouths, in large part due to immigration. I’m not knocking immigration itself: my point is that the ownership of the mineral resource is really all about the government having ownership, rather than the individuals. Otherwise it is all a bit tenuous, I think.

    PS: maybe the government could remove the fuel subsidy (for miners) too?

  2. May 10th, 2010 at 19:38 | #2

    Couldn’t agree more PrQ … it’s an eminently sensible measure.

    Managing the pokitics, I’d tie a fixed proportion of the net revenue (say 5%) into super fund accounts of the bottom six deciles of the population …

    Let the opposition run against that and still pretend to populism!

  3. May 10th, 2010 at 19:39 | #3

    oops … [ pokitics] politics

  4. Freelander
    May 10th, 2010 at 20:01 | #4

    It was very foolish of the government to call the instrument a tax. They should have called it a resource charge or something without the word tax.

    They ought to have dreamed up a different name to reflect that it is a user charge for the extraction of Australian resources. A tax is typically an instrument for revenue raising that is not directly requited or, in some cases, some might argue not requited at all. This particular tax is a way of charging for the Australian owned resources so it is a charge that is requited and therefore shouldn’t be called a tax with all the connotations the word tax involves.

    The rent seekers have been carrying on as though it is their money that is being taken and that they are their resources, when really they had been getting to extract the resources too cheap for too long. This way of charging is far better than the previous method. They are still getting those resources remarkably cheap.

    An argument that seems to be being overlooked, or at least not well articulated, is that these companies are far from 100 per cent Australian owned, and as the new charge will mean taxes will be able to be reduced relative to what they would have been, this means the end result of the charge is that lower taxes will mean that far more money will be left in Australian pockets than might be lost through any reduction in profits through part ownership of mining stocks.

    Unfortunately it seems the opposition is having some success spinning the line that Australians as investors through Superannuation will end up worse off.

    The government should have been prepared with a few numbers to demonstrate that when everything is netted out, Australians on average will be better off with the super profit charge than without it.

  5. Chris Warren
    May 10th, 2010 at 21:43 | #5

    While a tax on profits is desirable why not on all super-profits (however defined). The banks are excused because of claims they will pass the tax on. Top education exporters are making huge profits. What is the marginal cost of the 601st student into an existing campus? – a long way less than the international students fee.

    Miners receive sales income from overseas so even if they pass it on – this does not obviously harm Australians. The same applies to education exporters.

    All the PIIGS nations and the UK are approaching breaking points with debt. This is a warning to Australia particularly as under Keynesian precepts, the State must provide stimulus, but this just ratchets up decade after decade – as we are now seeing. However by increasing taxation on profits – Australia is better able to apply stimulus in a somewhat sustainable manner – ie without increasing debt.

    But how do you manage the violent, jingoistic campaign being launched by mining capitalists, their allies in the media, and Tory politicians?

    This is the difficulty and is similar to the dynamics and forces unleashed that destroyed Jack Lang when he took action against banks.

    Policy is not determined by politicians – it is determined by swinging voters in a dozen marginal seats. Though the logic of the move is impeccable, the implementation seems rash, unplanned, ill-considered, and may destroy ALP’s electoral appeal within swinging voters in marginal seats.

    However if a sufficiently well thought out education campaign can be launched, then Rudd may survive next polling day. If he is kicked out of government, the tax will never see the light of day.

    I suspect that a broader-based, Tobin Tax would have been a better option. I wonder what amount of discussion occurred in the ALP Parliamentary Party Room before this was announced.

  6. gregh
    May 10th, 2010 at 21:54 | #6

    @Chris Warren
    it is interesting (and pleasing) to note that the junk press, as represented here in brisbane by the courier mail, is printing a lot of letters in support of the tax and openly trashing the mining industry’s propaganda campaign.

  7. Alice
    May 10th, 2010 at 22:23 | #7

    @Chris Warren
    says “Top education exporters are making huge profits.”

    You mean universities? They are also making money in a particular Sydney uni campus north of the harbour by acting as an immigration processing centre on the weekends. Letting out rooms for english language tests for immigration purposes to hundreds of young immigration applicants. I wonder how much they are charging the government for that?. Who pays for those tests? Is the charge per room, per test, or per applicant? Hmm.
    Or has the government just seen a good way to sub contract the job out and mass produce applications?

  8. Michael
    May 10th, 2010 at 22:38 | #8

    Perhaps they should have called it the “love it or leave it contribution” 😉

  9. May 10th, 2010 at 22:51 | #9

    The Canadians who see extra investment in their mineral industry as a consequence of this tax obviously don’t share your neutrality views. Exploration decisions will reflect relative expected profitabilities which will fall for Australian projects with this tax.

    The equity argument makes sense if the redistrutive effects of the tax can be separated from the efficiency aspects. They cannot. There will be less investment in Australia and fewer working Australians will enjoy the high wage benefits of the miniming boom and taxes on these incomes will be lost. Superannuants will suffer. Foreigners have put their capital into risky mining ventures only to face a 40% ex post expropriation. They will factor this into future investment decisions.

    There are property rights on mineral resources which are traded in markets. We should not/do not live in a socialist state where property rights can be summarily ignored. Longer-term we will suffer as a consequence of these penny wise-pound foolish policies. The losses in stock market values that are wealth to millions of Australians via their superannuation, the loss of labour and other taxes and charges on projects that will never be initiated and the long-term loss of confidence in the veracity of Australian governments will be significant costs.

    The Labor pollies – and the comments above – show all the signs of a populist wealth grab. I assume this daft policy will never be implemented and that Rudd’s inept Prime-Ministership will finally be torpedoed by this ineptitude.

  10. Freelander
    May 10th, 2010 at 23:11 | #10


    If they want to give their resources away fine. If you think Canada has it right why not immigrate?

  11. CJ
    May 11th, 2010 at 00:12 | #11

    Another point is that Australia’s mineral resources, while immense, are not infinite. It makes sense for some of the profits to be taken from the mining sector and used to fund other sectors, so that the mining boom has long term benefits for the Australian economy. Whether the Government is the best institution to manage this redistribution of funds is a different question.

  12. Bingo Bango Boingo
    May 11th, 2010 at 06:10 | #12

    The legal equity argument advanced by Prof Quiggin is clearly and obviously wrong. On-shore minerals belong to the Crown in right of the States, not the Commonwealth. Hence State royalties. A State does not represent “all Australians” but rather the residents of that State. Basic stuff. As an aside, Prof Quiggin is also wrong to assert that mineral resources have always belonged to the state; the current position is the product of successive colonial proclamations and State statutes which modify the common law (which, with a few exceptions (e.g. gold and silver), has followed the maxim cuius est solum, eius est usque ad caelum et ad inferos since at least the 18th century).

    “If you think Canada has it right why not immigrate?”

    This is the most idiotic comment I’ve seen here in a while. And there’s a very strong field running in that one.


  13. May 11th, 2010 at 07:11 | #13


    I heard you on AM this morning. Well said.

    I thought you could have made the point that at the margins, no mineral exploiter is going to abandon a profitable project because it isn’t quite as profitable as it might have been had the RSPT not applied. Changes in commodity prices have a much greater impact on profitability than will this tax and in a senses, adverse movements will be mitiagted in their effect by this regime.

    It may well be the case that under the RSPT regime, more risky or marginal projects get to see the light of day since the tax is out of windfall profits and royalties which apply whether the project is profitable or not are rebated.

  14. jquiggin
    May 11th, 2010 at 09:46 | #14

    BBB, these are trivial quibbles. Come back when you have a real argument. To respond briefly

    (1) Since the colonial statutes predate the Australian federation in 1901 your second quibble is obviously wrong. As you say, basic stuff.

    (2) As for your first, the state governments are, for practical purposes, fiscal dependents of the Commonwealth, so the onshore-offshore thing is a distinction without a difference.

    The underlying point is that the resources in question belong to the public (regardless of the federal-state details) and not the mining companies.

    To end, and assuming it to refer to your entire comment, and not the immediately preceding quotation, I’ll agree with your final sentence.

  15. Freelander
    May 11th, 2010 at 09:51 | #15

    @Bingo Bango Boingo

    The resources, if remembered correctly are owned by the ‘crown’. It is the same ‘crown’ at state and commonwealth level. Changing where the revenue ends up is quite a small matter. There is also a matter of the Commonwealth Grants Commission and how revenue is balanced between the states taking into account each state’s own capacity to raise revenue and their activity in doing so.

    So, in essence JQ is correct.

    Thanks for the rebuke. One cannot but be proud to be rebuked by such as you. There are boats still sailing to Vancouver.

  16. James
    May 11th, 2010 at 10:27 | #16

    @hc ,
    Harry, if this tax causes a redistribution of wages and investment capital away from mining towards other sectors, it would probably be a good thing for Australia as a whole as it would dampen Dutch Disease tendencies.
    Stock markets go up and down all the time, under the impact of crowd psychology, sudden news flashes, government policy, the time of day, whether or not the traders have taken their prozac; compared to a property market crash, say, the impact of the resource rent tax announcement barely qualifies as a blip.

    “There are property rights on mineral resources which are traded in markets.”

    I do not share your presumption that anything which is traded in a market is somehow sacrosanct. In many places in the world one can trade in markets for property rights in child labour, military-grade armaments, opium poppies, enslaved prostitutes, and similar commodities. It is not possible to maintain any sort of coherent moral position which does not allow the community, through the state, some say in what may and may not be traded and on what terms.

    Legal markets, property rights, and access to mineral resources are all instruments created by the state to advance the common good. If the state, democratically elected by the citizens, which is the ultimate owner of the mineral resources in question, decides that imposing higher prices, fees, or taxes will better serve the common good, it, that is, we, have every right to do so. This is not to say that it is necessarily good policy to do so, but the rights argument is a furphy.

  17. Stephen L
    May 11th, 2010 at 10:49 | #17

    At least some of the minerals we are talking about are likely to start becoming more scarce over the next few decades. Consequently, if mining companies back away now for fear of paying extra taxes it is all to the good – they can come back when prices have risen to the point where the profits are simply too tempting, tax or no tax.

    In the case of coal, if any projects are abandoned we are doing the entire planet a favour.

    I think there is a case for an exemption for rare earths, as there is a very powerful argument that we need to be scaling up their production urgently, but this is such a tiny part of the mining industry that it doesn’t affect the merits of the tax as a whole.

  18. May 11th, 2010 at 11:39 | #18

    @Stephen L

    Which is what I’ve been musing upon: can this kind of policy have the same impact as the now abandoned (sorry, “deferred”) ETS?

    Yes, we export a range of materials but does this equate to a tax on carbon products? (i.e. coal) The slight dent in the mining companies profits may not actually dent impact CO2 emissions, but these costs will be passed onto consumers (either directly or indirectly). Could this have a trickle down effect?

    Has Rudd simply recast the concept of the ETS in nationalistic terms (“They’re our rocks you know…”). In political terms, a direct tax on mining company profits is an easier sell than than the complex and flawed beast the ETS had become.

    Coincidence that the ETS gets dumped, and we get Resource Tax? Do I detect method in the madness?

    Yes, I get that is what some conservatives/mining people are saying… and I’m happy to be corrected on the issue.

  19. Socrates
    May 11th, 2010 at 13:12 | #19


    That is just repeating the mining industry talking points. The tax won’t stop profitable mines being developed. The property rights argument is also false – no such right exists. Miners own a lease and a right to extract minerals; that is all and they know it.

    I have only two concerns:
    – as Chris Warren said, why not banks as well? They have massively benefitted from government guarantees during the GFC, and now stand to reap increased profits as a result. Over the past two decades banks have been massive beneficiaries of government policy changes (eg salary paid into “no-fee” bank accounts, which of course no longer exist), yet their tax rates have on the whole declined. This just encourages bad behaviour.

    – the mining super tax should be accompanied by more generous rules on tax deductibility for mining exploration. This will also prevent any reduction in mine development as claimed. One legitimate argument for high rewads for successfull mining projects is that many mining projects never reach a productive phase and exploraiton and development is costly. this isn’t just a question of timing but risk as well. Thus they need to make above normal profits on successful mines to balance out losses on the failed projects.

  20. jack horner
    May 11th, 2010 at 13:40 | #20

    hc #9 ‘We should not/do not live in a socialist state where property rights can be summarily ignored.’

    No-one is ‘summarily ignoring’ miners property rights. They still have their leases and permits – the government is just saying ‘we are going to tax your profits more.’ Just like it could increase the company tax rate or the income tax rate. Or increase one in order to reduce the other. Or levy a GST. Or reintroduce death duties. Or whatever.

    Almost any change to the distribution of taxing and spending will have winners and losers. If losing was forbidden, government could never do anything.

    People who want to trade in things whose value is sensitive to government policy changes need to be aware of regulatory risk.

    As for those poor superannuants – the super industry appears to be comfortable with the new tax, and estimates it will knock about a tenth of one per cent off account balances – see http://industrysupernetwork.com/document-library/publications

  21. May 11th, 2010 at 15:04 | #21

    Pr Q said:

    There is, finally, a purely political argument for the government to stick with the RRT as announced. Having caved in on a range of issues, and most notably on the ETS where the mining lobby was prominent among the opponents, the government has to show some spine here.

    Rudd should stick to his guns on core Centre-Left-wing issues. Anymore back-downs and he will start to get a reputation for having “no ticker”.

    Over the past couple of years I predicted that the ALP would swing to the Left in the run-up to the 2010 election. In some ways that has happened, with the Commowealth’s planned takeover of health and the RRT being prime examples. And a strong performance in 2010 will give him political elbow room to pay off his base with some Left-wing goodies.

    But the ALP administrative record has been spotty due to difficulties with both political considerations and policy administration. Government is a tricky business!

    The strongest argument for imposing a RRT is, as always, political. Rudd has backed-flipped or failed to deliver on too many core promises already. That is the reason why he is slumping in the polls, voters are starting to get the feeling that he is “all hat and no cattle”. The Oz reports on a tense Caucus meeting:

    Labor’s plunge followed a series of policy reversals and broken promises, including the decision to shelve a plan for a carbon emissions trading scheme after Mr Rudd had spent two years describing climate change as the most-pressing moral challenge facing his generation.

    Mr Rudd had also dumped plans to build 222 childcare centres on school grounds and scrapped his $2.45 billion home insulation scheme, which had been linked to scores of house fires and four electrocutions and will leave taxpayers a $1bn clean-up bill.

    Of course Rudd has also back-down or back-flipped on a couple of other liberal committments dear to the hearts of the ALP base, specifically a Charter for Human Rights and a more open door for asylum-seekers. But these were not exactly popular causes amongst the general public so they don’t really affect greater political considerations.

    He should follow-through on core Left-wing committments and make those policies work. This requires good ministers who are not exactly thick on the ground as the troubles plaguing ETS, health reorganizations, insulation installations, schools and child-care centre building programs indicate. A thing to remember every time the Howard government ministers are dragged out for another beating.

    I am sticking with my prediction that Rudd-ALP will at least hold onto, if not increase, their electoral advantage in the 2010 election. (Which implies a land-slide partisan re-alignment). I do not think that the L/NP is capable of mounting an effective opposition as a unified party under an electable leader. Particularly to a more diverse electorate pre-dominated by a rising tide of aging Baby Boomers, single mothers and NESBs.

    And the L/NP’s policy platform is a bit of a shambles, not all that attractive to the mainstream voter. Particularly the re-surrection of Work Choices and the burying of an ETS.

  22. Monkey’s Uncle
    May 11th, 2010 at 15:08 | #22


    Given that the proposed tax is technically a tax on profits rather than a flat charge or royalty per volume of minerals extracted, the question of who technically owns the minerals (the state or commonwealth) should not be a problem. In any case, Professor Quiggin is an economist, not a constitutional expert. As such, he is simply making the economic argument that minerals are a scarce public resource and as such the maximum amount of revenues possible ought to be extracted.

    The only thing I find curious is that, if it is possible for the federal government to whack such a large new tax on mining companies and existing projects to remain economically viable, it must mean the existing royalties being collected by the States are woefully short of what they could be collecting.

  23. May 11th, 2010 at 15:31 | #23

    Very good article by mumbles at Inside on the Rudd conflation of politics with policy:

    Still, it must be said that Rudd is an extremely uncourageous prime minister. It is not just that he obsessively avoids doing anything contentious, and retreats at the whiff of grapeshot. At a fundamental level he lacks the confidence to explain the government’s position on anything. When pressed, he offers generalities or shifts into meta-drive, boasting about how courageous he is.

    The line that voters want Kevin07 back has it wrong. The problem is that he is still Kevin07. Like most successful opposition leaders, he ran a small target strategy, but unlike the others he kept to it in office. The almost total conflation of policy and politics is opposition terrain; in government it is dysfunctional.

    Rudd doesn’t grasp that being prime minister brings certain attributes and certainties. And people don’t expect incessant grovelling from someone in a position of great authority. It doesn’t sit right; in fact, they expect on occasion to be told what is good for them. Yet, from the latest tabloid/pop “controversy” to high economic policy, Rudd’s instinct is the same: parrot what he perceives as the “average Australian” view.

    Rudd’s current polling problem is caused by him clinging to the small target path-of-least-resistance profile that suits Opposition leaders. But most voters want Governments to do something grand once in a while, not just occupy Treasury benches. Despite, or perhaps because, it will hurt certain interests. Voters want “the firm smack of government”, particularly if it lands on the backsides of parties they don’t like.

    If Abbott puts in a really good performance or even wins then we will have to junk a fair bit of psephological theory. But Abbott can only trample Rudd if he lays down before him and acts like a door-mat to ever vocal interest group.

    My sense is that this is Rudd’s natural instinct, as a diplomat and bureaucrat. He focuses most of his will-to-power on those within his office, whilst those without are relentlessly glad-handed, smoothed-over and molly-coddled. Its good in Opposition, not so good for Government. So he needs to do a bit of a make-over, preferably in the context of breaking the heads of some unpopular group within the community (lawyers?)

    Perhaps the ALP would be better off with a more hateful leader in the medium to longer term. But I cannot really see Gillard or Swan taking up that role. And who else is there, really? In any case, when push comes to shove the AUS electorate do prefer boring leaders, Menzies, Fraser, on-the-wagon Hawke, Howard.

    As mumbles said, cowards usually do live to fight another day.

  24. May 11th, 2010 at 15:33 | #24

    @Monkey’s Uncle

    They probably are low. Of course, the state royalties are collected regardless of the profitability of any mining operation, so in effect, the risk is taken by the prospector. Plainly they want lots of upside if they are to take such risks and so that results in lower royalties.

    In this model some of the risk is taken by the state — so the prospector doesn’t risk as much loss and doesn’t have to pay if the mine turns out to be marginal. So it’s lower risk and lower return, but still with a substantial prospect of advantage.

    Under this model, one would expect a greater number of marginal operations to get going.

  25. May 11th, 2010 at 15:40 | #25

    Chris [email protected]#5 said:

    While a tax on profits is desirable why not on all super-profits (however defined). The banks are excused because of claims they will pass the tax on. Top education exporters are making huge profits.

    Brilliant! A super-tax on banks fits the bill of a bold policy move that hurts some despised members of the community. Who have it coming to them. Rudd could really grow some cojones if he pulled off that.

    No one likes banks and they are widely perceived as being responsible for the GFC. Why not whack a super-tax on them? Its not like they can leave en masse and set up offshore. For a start they need a licence to hang a shingle in this country.

    The banks are not exactly un-flush with cash. They are rolling in it, largely as a result of government factoral, fiscal and financial management of the GFC crisis.

    What a tempting target.

  26. Monkey’s Uncle
    May 11th, 2010 at 15:47 | #26

    Fran, that is no doubt true. I hadn’t fully factored in the different economics of fixed royalties regardless of the profitability of individual mining operations.

    And no doubt a lot of the existing rates of royalties were set during times when there was less mining activity than at present, and as such they were designed to still allowing mining to be viable in those economic times.

    Although state governments could still increase royalties during resource booms, or perhaps institute a progressive system where royalties would increase if a given operation yielded more than a certain volume.

  27. May 11th, 2010 at 15:51 | #27

    The resource rent tax will reduce the present value of the mining sector by 10%.

    No disincentive effects to explore and develop?

  28. Freelander
    May 11th, 2010 at 15:51 | #28

    @Monkey’s Uncle

    There are two things. One, the existing royalties being collected are woefully short of what they should be being collecting. And two, the royalty method is a woefully inadequate and inefficient method of collecting the government’s tribute for extracting its resources.

    The royalty is inefficient because there are some projects that would go ahead because they would be profitable without the royalty but are unprofitable with the royalty. These projects would go ahead to the benefit of companies and Australia without a royalty but with a super profit charge. They are inadequate because the value of access to extract Australian resources depends on not only the costs of extraction but also the price obtained for those resources on international markets.

    This price has gone up considerably due to the rapid industrialisation and resource demand emanating from China. This increase in price is reflected in super profits and last year some $90billion in super profits sourced in resources extracted from Australia. The very low and inadequate super tax charge of 40 per cent will get but some of this for Australian resource owners, that is some of this currently unrequited gift to the mostly foreign owners of mining shares. The big owners of mining shares are properly described, currently, as welfare bludgers and are quite being vocal and are clearly upset. These bludgers are displaying a high degree of entitlement. And again these welfare recipients are mainly foreign, who are surely not the responsibility of the Australian taxpayer as none of them qualify for foreign aid.

    Call me a heartless conservative if you like, but I don’t think anyone should support the form of socialism that involves significant welfare payments to a great number of those who are considerably better off than the ordinary Australian. We should liberate these wealthy bludgers from the moral corrosion their current high level of bludging subjects them to. The super profit tax is but one small step towards such liberation.

  29. Bingo Bango Boingo
    May 11th, 2010 at 15:55 | #29

    John – let’s be clear about what you said:

    “* The legal equity argument. In Australia, mineral resources are, and always have been, owned by the state, representing all Australians, and not by individuals. So we should seek to maximize the return on our own assets.”

    You are saying that the “legal equity” argument for a Commonwealth RSPT rests on (1) the minerals being owned by “the state, representing all Australians”, which is legally and factually wrong, and (2) that this has always been the case, which is legally and factually wrong (even if it is assumed that you were referring to the States and not the Commonwealth, which you weren’t). By all means make the case that the general Australian public – represented by the Commonwealth – should find a way to benefit more fully from the exploitation of mineral resources, just don’t pretend the law (or the history of the law) is on your side. Re your claim that my “second quibble” is clearly wrong – you have overlooked the difference between “the state” (lower-case) and “the States” (upper-case). That said, you are right that these are minor points in the overall scheme.

    Finally, if you think “why don’t you just move to Canada then” is less idiotic that my reasoned refutation of an apparent legal argument, then you are a little more blinkered than I thought, which is disappointing.


  30. Alice
    May 11th, 2010 at 16:31 | #30

    Freelander – “call me a heartless conservative if you like” LOL . Funny… in your usual form… Mining industry – upper crust welfare bludgers is spot on.

  31. Freelander
    May 11th, 2010 at 16:36 | #31

    @Bingo Bango Boingo

    Worth noting, amongst other things, that any Australian can choose to live in any state. States are states of Australia and cannot choose to up and leave, much as some might like.

    As for “move to Canada” being less than your “reasoned”? “refutation”?, at least the statement is corrected, which puts it a cut above rr labelled your statement. Next port Vancouver?

  32. Bingo Bango Boingo
    May 11th, 2010 at 16:43 | #32

    Can’t say I disagree with the general point re corporate welfare and the mining industry. The largesse is unjustifiable (although not really different in kind from all sorts of breaks for narrow commercial interest groups, which breaks are, after all, the natural outcome of state/government control). But Freelander, if you don’t like the way we do things in Australia, why don’t you just get out of the country and find some place where mining companies are not treated so preciously? Or have you already left?


  33. gregh
    May 11th, 2010 at 16:57 | #33

    I love all the ‘Australia is great mate – If you don’t like it go back to where you came from’ stuff. Reminds me of growing up in Australia.

  34. Freelander
    May 11th, 2010 at 18:09 | #34

    @Bingo Bango Boingo

    I am the one very happy with the reduction in welfare for mining that is being proposed. I don’t need to acquire Canadian citizenship. I am happy right here where I don’t see the prospect of having to arm myself with a cattle prod.

  35. Jarrah
    May 11th, 2010 at 18:37 | #35

    “The underlying point is that the resources in question belong to the public (regardless of the federal-state details) and not the mining companies.”

    So what about farming, fishing, tourism? Your argument strikes me as very weak.

    I am 100% behind the Henry proposals for changing the tax base in the long term to relying more on resource rents (as one of four areas) but this tax doesn’t look like the right kind of reform.

  36. May 11th, 2010 at 18:42 | #36

    I’ll look forward to more analysis here and elsewhere.

    However the idea that mineral resources are owned by all Australians is incorrect. The resources are owned by the crown of the state in which the resources lie. Queensland resources are owned by Queensland – if you like, by the citizens of Queensland – not by those living in Canberra, Melbourne or Sydney. Similarly all those resources in other states are owned by those other states. Australia is a federation before it is a nation – despite what all the nationalists would like.

    From my perspective – all the resource tax means to me is that I’ll have even less to retire on. The super tied up in super funds will decline in value by more than the resource tax. I don’t have much – I’d be classed as close to the poverty line. But I’d like to not have to resort to a government aged pension. This is looking more unlikely every day.

    I’d like to see some proper modelling of this – or at least some modelled outcomes, factoring in less mining and exploration, loss of superannuation fund values, loss of taxation revenue etc etc. Every time I turn around the government grabs more, spends it foolishly and leaves everyone worse off. Every rise in super contribution is gobbled up as soon as it hits the super fund.

    You guys are smarter than me when it comes to economics. I hope to see some proper analysis soon, not simple ideology.

    This is the last straw for me, after frittering money away on silly grocery and fuel websites, Rudd’s wowserism, Conroy’s internet censor, the forgotten climate change mitigation, the slow response to the Murray River crisis and the grab for taking over as much as possible from the states. I can no longer vote for Labor; I’ve never voted Liberal and wouldn’t while Abbot is leader; so it’s Green’s or a donkey vote this time around.

  37. Zarquon
    May 11th, 2010 at 19:11 | #37

    if you like, by the citizens of Queensland

    Queensland doesn’t have citizens, it has residents. Unless you have a Queensland passport?

  38. May 11th, 2010 at 19:17 | #38

    I didn’t realise Queensland had no citizens. But that’s okay, Zarquon. I’m a citizen of Victoria first, and a citizen of Australia second so it doesn’t affect me personally.

  39. Michael of Summer Hill
    May 11th, 2010 at 19:18 | #39

    Sou, I would not despair for the general consensus seems to be that in the long run the Resources Rent Tax is likely to increase foreign investment and create more employment within the mineral and mining sector. The rhetoric coming from Tony Abbott just highlights how ignorant he is on the subject matter.

  40. Freelander
    May 11th, 2010 at 19:34 | #40


    Farming? Well farmers do have some rights over the land they have title to, but not nearly as extensive as they would like to imagine. Fishing is hardly without government imposed restrictions either. If you believe that all the resource charge means is that you will have even less to retire on you are silly indeed. You are silly if you placed all your chips on mining stocks and silly if you assume that your super fund placed all their chips on mining stocks as well. You are also silly to ignore that most of the mining shareholders getting the present $90billion per year gift are foreign. The government is, regrettably only clawing back 40 per cent. Over $50billion per year for nothing is significant welfare. Also, not letting this money escape means not having to raise money from other sources, income, consumption and taxes on profits. This should leave you better off as far as what you are left with in retirement. Not only that but employer contributions are going up. Maybe you are not silly and are simply a troll? Or a mining magnate? That is, one of those rabble who recently appeared on the television news, not quite wise enough to know they would be more effective if they remained unseen and unheard, and let their paid mouth pieces, like the IPA, CIS, and journalists and opinion writers at “The Australian” do their talking for them, as they usually do.

    Zarquon, quite right. The states have residents, they don’t have citizens, and more and more it is beginning to seem that they shouldn’t really have governments, because the confusion in roles and responsibilities and the constant ‘blame game’ is not leading to great outcomes.

  41. Freelander
    May 11th, 2010 at 19:40 | #41

    Sorry Jarrah, my remarks on believing the resource tax means less to retire on, of course, refer to Sou. My apologies for an omitted sentence.

  42. May 11th, 2010 at 19:49 | #42

    It looks as if I’m the only sceptic here who has leftist leanings.

    I’d still like to see the results of modelling on this. A 40% tax on anything above a 6% return, plus company tax will slow down mining. My guess is that’s what the government wants – to cool the economy. They also want the budget to look good, although I doubt they think the tax will yield as much as they project publicly. Usually bureaucrats will give them all the answers – palatable and unpalatable. It’s the politicians who pick the ones they want to use.

    I’m not convinced about this “dutch disease”. Too pat and not enough evidence to support the link – at least to the situation here in Australia.

    Exploration might or might not be affected as much as actual mining, depending on whether investors think the tax decision will be reversed – or at least made more reasonable – eg a tax on super profits rather than a tax on normal profits. But explorers constantly need to raise new capital and in the short term I can’t see too many people getting excited about investing in exploration when the risk has just been raised a lot. It could be that with less mining and less exploration, when we need some money coming in and jobs for unemployed, we won’t get it from the mining sector.

    BTW – is everyone who disagrees or questions taken to be a troll? Or is that just a feature of this blog?

  43. Freelander
    May 11th, 2010 at 20:16 | #43


    Sorry, maybe you are not. Interesting that you did not choose the other options. If done perfectly, the super profits tax would have no impact on the level of mining effort. Given that the tax is being implemented not in a model but in the real world it probably will result in some, probably relatively small, reduction in mining investment. This is not in itself at all a bad thing.

    Mining is currently inducing major distortions in the Australian economy.

    Mining investment is using resources that would otherwise be available for housing and hence housing starts are lower than they otherwise would be with inflation in the housing market (which eventually may mean a bust) and quite a racking up of rents for those not lucky enough to own their own home.

    The improvement in the terms of trade will make many Australian industries less competitive and these industries will either reduce their demand for labour or the wages they pay or both. On the other side of the ledger imports should be cheaper.

    Cooling things down a bit, with more resources staying in the ground a bit longer is not such a bad thing in these circumstances. With less supply of resources the prices received will be a bit higher, and down the track prices should also be higher anyway so leaving more in the ground is not such a great loss.

    The small restriction is likely to simply reduce some of the costs of the current distortions and give us a greater return on the resources over time.

  44. Jarrah
    May 11th, 2010 at 21:09 | #44

    Freelander, the “farming, fishing, tourism” comment is meant to highlight the fragility of the argument that “we” own the minerals that miners extract and therefore they should be treated differently to other industries. Yet, farmers use up common-heritage items like water and soil fertility, fishermen extract fish from common waters, and tourist operators get their profit from using our natural wonders. By logical extension, the RRT should be extended to them* as well – if the argument makes sense. But it doesn’t.

    * – And others, because the “legal equity” justification could be extended quite widely.

  45. Michael
    May 11th, 2010 at 21:19 | #45

    gregh :
    I love all the ‘Australia is great mate – If you don’t like it go back to where you came from’ stuff. Reminds me of growing up in Australia.

    I recently saw a Mitsubishi triton with a large “Australia Love it or leave it sticker” in the window. My blood pressure shot up immediately. I don’t know the exact origin of this coded bigotry, but it seemed an appropriate boganese translation that mining magnates might understand.

  46. May 11th, 2010 at 21:43 | #46

    It looks as if demand from China will slow. It’s share market is now officially a bear market. China is likely to raise interest rates to try to ease the property bubble. Therefore investment will slow as will demand for commodities.

    So it’s highly unlikely that the mining sector will deposit as much into the Fed government’s coffers as planned, even if they leave the double tax on profits above 6%. A lot of new Australian mining projects are being put on hold until the tax details are confirmed and the risk/return recalculated. With Europe and Japan also looking dicey, the next few months will be tricky. I don’t think we are out of the woods yet.

  47. Michael of Summer Hill
    May 11th, 2010 at 22:01 | #47

    Sou, a good indicator of how the Chinese economy is going is by looking at some statistics like demand for steel and coking coal which is expected to rise by about 47 percent from a year earlier to 50 million tonnes in 2010. The Chinese economy looks robust.

  48. Michael of Summer Hill
    May 11th, 2010 at 22:19 | #48

    Sou, according to the latest reports crude steel output in China rose 27 % and production jumped to 55.4 million metric tons last month compared to a year ago indicating that demand from automobiles and appliances continue to rise.

  49. Freelander
    May 11th, 2010 at 22:26 | #49


    I get your point. Technically “we” do, but in practise, too often it might as well be that we don’t.

    My view is that when people start in with property rights and ownership arguments they often inflate what those rights are and ignore how they are conditional on the consent of everyone else through elected governments, laws and courts as well as various mores, norms and other conventions of behaviour.

    Historically governments, for many reasons have been far too willing to allow vested interests to expropriate publicly owned resources for their own ends. Leaseholdings with a variety of restrictions placed on them can costlessly be transformed into freehold land in exchange for political support and a few votes. Likewise, with various sweet deals for industry and, in the old days, a variety of tariffs bountifully distributed. This is not to ignore expropriation operating in the other direction with government transferring ownership out of private hands without adequate recompense which tends to happen to those who are not so well off and have little voice, little power or wealth, and command few votes.

  50. Freelander
    May 11th, 2010 at 22:36 | #50


    Demand for resources may slow, but the driver is more likely to be the state of the world economy and whether that slows than anything else. And if that happens any slowing will be temporary. China’s stock market may well be overvalued and suffer a correction or more. That, however, will not halt global demand for cheap Chinese products and the process of growth in China with labour from the rural areas being integrated into their industries. Thus the demand for resources will continue and so will the high prices, unless new easily accessible ore bodies and oil fields are suddenly discovered, which might not be likely.

    At the moment, the Chinese are allegedly stockpiling resources with the intent to have a showdown with mining companies over prices. This could cause a blip but companies should just ignore them (even if hard bargaining means the occasional executive goes missing while in China).

  51. May 11th, 2010 at 22:48 | #51

    Couldn’t agree more, particularly the counter-cyclical nature of a ‘boom time’ tax. Despite the aversion to taxes, I’m glad budgets can still raise taxes in Australia without tea-party-esque shenanigans.

  52. Chris Warren
    May 11th, 2010 at 23:05 | #52

    Passing some benefits of the super-profits tax through to small business and Australian companies will generate some additional support for this move.

    Its odd that our economy is so based on China, when China is based so much on sales into Western economies that are heading into austerity.

    Maybe this just means Australia lags the rest of OECD economies, and does not necessarily escape?

  53. Freelander
    May 12th, 2010 at 01:09 | #53


    The tea party simply reminds everyone that the USA was founded on tax evasion, or as they might prefer to say a tax revolt. The Greeks are currently suffering the legacy of tea-party-esque failure to pay tax combined with a huge sense of entitlement. Although, the consequences of that legacy have been diminished by the IMF and more responsibly run European countries bailing them out. German anger is understandable.

  54. Salient Green
    May 12th, 2010 at 08:27 | #54

    I agree with the RRT for all the reasons stated by John Q and others. I would also like to see mining companies provide all rental housing at reasonable cost to emplyees as well as take a more responsible role in training emplyees for their needs rather than poaching them from other sectors and countries.

    However, perhaps it would be fairer for mining companies to be able to accumulate all their development costs into a pool of capital which can then be used as a form of depreciation to offset taxation only when they start to make a profit, with flexible depreciation rates which account for the expected life of the venture and changing markets.

    Would that be too difficult?

  55. James
    May 12th, 2010 at 10:34 | #55

    Jarrah :Freelander, the “farming, fishing, tourism” comment is meant to highlight the fragility of the argument that “we” own the minerals that miners extract and therefore they should be treated differently to other industries. Yet, farmers use up common-heritage items like water and soil fertility, fishermen extract fish from common waters, and tourist operators get their profit from using our natural wonders. By logical extension, the RRT should be extended to them* as well – if the argument makes sense. But it doesn’t.
    * – And others, because the “legal equity” justification could be extended quite widely.

    If you check recommendations 51-54 (IIRC) of Henry you’ll find that he recommends various land and natural resource taxes which do precisely this (extend a Resource Rent Tax or something similar). The govt is not following through with it (at this time) because it would mean large political pain for small financial gain.

  56. Monkey’s Uncle
    May 12th, 2010 at 11:11 | #56

    I think it’s a bit silly to draw comparisons with farming. Farmers grow their crops on private land they had to purchase, and must put work into cultivating their crops.

    The closest equivalent would be if conventional agricultural crops simply grew in the wild on public land, and all farmers needed to do was to find and harvest said crops. In that circumstance, it would surely be reasonable to charge farmers for having access to a public resource.

    And fishing is already heavily regulated. Anyone cannot just go and take as many fish from the water as they please.

  57. Chris Warren
    May 12th, 2010 at 11:27 | #57

    @Monkey’s Uncle

    The comparison with farmers seems reasonable. Miners also do not just ‘find and harvest’ ore from wild public land (terra nullius?).

    The point is that miners have not paid a fair share to Australia of the product from the lands they purchase access to.

    This applies to many other sectors of the economy.

  58. Gus
    May 12th, 2010 at 12:24 | #58

    Somewhat off-topic, but would appreciate an analysis of smoking taxes. As smokers are disproportionately poor, this seems to me to be an incredibly regressive tax which could only be justified if the funds raised were specifically allocated to smoking cessation programs, most of which should be targetting the poor.

  59. Fran Barlow
    May 12th, 2010 at 12:56 | #59


    While I don’t support your initial reasoning — of course we want to target those who will suffer most by smoking and who have the worst access to health services by discouraging them from smoking — I agree the focus should be on providing them with programs that assist them to reduce or quit or get treatment for smoking related condition. Spending any of the money on programs unrelated to smoking-related health conditions or smoking reduction (save in areas mainly directly benefiting the less advantaged) would be regressive.

  60. May 12th, 2010 at 13:11 | #60

    James, as I said before, I support resource rents in principle, but of all the arguments for them, the “legal equity” one (a misnomer, but I’ll leave that for the sake of expedience) is weakest in logic.

    Monkey’s Uncle, farming IS a good example. I mentioned soil fertility – ie, a certain combination of pre-existing molecules that they had nothing to do with* – which is essentially the same as what miners get their money from.

    The regulation or otherwise is not in dispute, but whether mining constitutes a special case that should be taxed more than other apparently similar pursuits.

    * – excepting enriching methods, which ironically usually come from mining and drilling, and the clear exception of sustainable permaculture and the like, where farmers don’t really extract value, but perpetuate it.

    Chris Warren, I believe your assertion about a “fair share” is related to JQ’s first point. I’m not sure if either is really true. If they are paying the same rate of tax as other industries, then surely that’s fair? And their profits are good now, thanks to China, but mining is a cyclical industry and so they need good years to make up for bad ones – just like farmers. Although I’m just supposing, it’s not a fully fledged economic model 🙂

    Regarding China, reducing mining investment (if that is what happens, which isn’t certain at all) could do them a lot of good – rising materials prices might help cool their overheated and very unbalanced economy. Again, just supposin’.

  61. May 12th, 2010 at 13:13 | #61

    There is no comparison with (freehold) farmers at all. If you throw farmers into the mix, then you also need to throw in all people who use land in any way, shape or form, including residents and businesses who own land.

    Fishers – yes. They do pay licence fees but I don’t know the level. Forestry on crown land and eco-tourism as well are in the same boat. As are the pastoralists who lease crown land – although they also lease the land and are required to make various ‘improvements’. By a not too different principle, people who visit crown land are often charged a fee (eg national and state parks).

    But the difference is that in most cases the fees / royalties are paid to the ‘crown’ that owns the land – ie the state governments. Normal taxes are collected through the Federal Government (on behalf of the States).

  62. Freelander
    May 12th, 2010 at 13:17 | #62


    It is an incredibly regressive tax if you are poor and choose to smoke. If you don’t smoke it isn’t regressive at all. The moral is don’t smoke.

    I do agree with your point that notice should be taken of where this revenue comes from when making expenditure decisions. However, taxes aren’t hypothecated, and even if they were, I would be surprised if more isn’t already spent on the additional medicare costs of smokers as well as on programs for reducing smoking and so on. This means hypothecation would be pointless as it would be unlikely to increase the amount of money directed toward these areas.

    If you want to read some good ‘research’, many apologists for big tobacco have cried rivers of crocodile tears for the inequity of the regressive tax on tobacco. Very interesting as the types of people who produce this made to order ‘research’ are the types that inhabit places like the IPA and CIS and in their other ‘research’ support all types of taxes that are incredibly regressive, like, for example, poll taxes. A poll tax is a lump sum tax, the same value for rich or poor, for simply existing. Making the choice to avoid that tax is somewhat more dramatic than simply giving up smoking.

  63. Freelander
    May 12th, 2010 at 14:12 | #63


    Farmers or others who own freehold land cannot do what they like with that land. Their use of that land is highly regulated. If the government decided to start charging them a rent for that land there would really be no impediment, except public anger stopping them from doing so. I haven’t read the Henry tax review yet, but I wouldn’t be surprised if there wasn’t a proposal along these lines anyway. It would be a great idea. It would be called a tax rather than a rent but would amount to the same thing. Land ownership does not really confer the rights, to do whatever you like, that many seem to think it does. And a good thing that it doesn’t.

  64. Salient Green
    May 12th, 2010 at 14:33 | #64

    I’ve just come across this disturbing, and illuminating, article on the growth of China’s coal production and the implications this has for Australian coal production and the world coal price in the near term.
    “If it’s not there you can’t burn it” is one of the headings. The way China and India are gobbling up coal will soon make a price on carbon unnecessary. Coal will price itself out of the market. Australia will have to ramp up production to the rising coal price. Scary stuff.

  65. May 12th, 2010 at 14:33 | #65

    I don’t understand the logic of charging someone who already owns land a rent for the land. The closest is rates that are charged by local councils – but this is ostensibly for local government services.

    I don’t believe any government in Australia has a legal basis for charging ‘rent’ for land they don’t own, let alone singling out landholders who farm land from other landholders (who almost without exception totally destroy the land by covering it with concrete and buildings).

    The government charging rent for land it no longer owns, to me is the weirdest notion – I wonder where it is coming from.

  66. Gus
    May 12th, 2010 at 14:35 | #66

    @Fran Barlow

    Fran, I have no general problem with taxation of smoking to reduce the level of smoking if it is effective, and if the taxation is primarily there as a health measure. As an aside, do the budget papers specify what reduction in smoking is expected?

    Freelander – The argument that people are choosing to smoke is overly simplistic given the evidence that nicotine is addictive. In this context, the funding of smoking cessation programs is essential if there is to be a moral argument for a regressive tax.

    In my area of interest, maternal and child health, we have sound randomised trial evidence that interventions to reduce smoking in pregnancy are effective at reducing both smoking and the proportion of infants born <2.5kg. There is no national program to fund smoking-cessation programs for all pregnant women who smoke. Can you imagine that, given the huge amount of money raised from smoking taxes?

    I am not an economist, but it looks to me like cigarettes are taxed because the demand of addicts is price-inelastic, rather than as a method of reducing smoking. This is why I would be interested in a post from John which addresses this issue.

  67. May 12th, 2010 at 14:39 | #67

    On reflection, I suspect what is being discussed is a land/property tax. That is a tax on a specific form of assets and is already levied in many states for land and buildings valued above a threshold. It has nothing to do with resource use. It is a form of wealth tax.

    Someone will undoubtedly correct me if I’ve read it wrong.

  68. James
    May 12th, 2010 at 15:00 | #68

    I suggest you check out Prosper Australia for an explanation and advocacy of the concept.

  69. Freelander
    May 12th, 2010 at 15:22 | #69


    The thing is they don’t really own the land in the way you might think they do. Governments can put taxes on anything. When taxes are levied they inevitably change the value of assets. A rational investor though has already factored that into the price they pay for an asset (that is called rational expectations). Hence, they recognise that government may very well put a tax on the asset changing its value so to compensate for that they pay less for the asset to take account of this risk premium. So when they are perfectly rational it is simply a gamble they willingly take with their eyes open. This means they can’t complain if or when the government does it. Rational expectations is a great thing. It is amazing what you can justify with a rational expectations argument.

  70. Fran Barlow
    May 12th, 2010 at 15:23 | #70


    I am not an economist, but it looks to me like cigarettes are taxed because the demand of addicts is price-inelastic, rather than as a method of reducing smoking. This is why I would be interested in a post from John which addresses this issue.

    It is the case that addicitive substances tend to be more price eleastic than non-addictive substances, but it’s not unlimited. That’s why one measure of success in the drug wars is the street price of controlled substances.

    Both for alcohol and cigarettes price is a factor. Given the externalities associated with smoking, which certainly include damage to fetuses, there is a strong case for resisting calims of this nature. We want people to stop and this might work.

    As I said though, I’d be wanting to very much ensure that there was a close match between revenue and relevant quality mass delivered outcomes-audited health programs. I’d quite like some of the funds to go into case management for all newborns — with priority to first time parents or those in the bottom three to four deciles of the population — with a view to establishing good parenting practice and a nurturing environment for children. That would not only address smoking, but other substance abuse, neglect, domestic violence, early education, childhood benchmarks and so forth. We could begin to make a start on breaking generational disadvantage.

  71. Freelander
    May 12th, 2010 at 15:24 | #71

    As for whether it is a tax or a rent… Which ever it is you get the same back in return. A receipt if you’re lucky!

  72. Monkey’s Uncle
    May 12th, 2010 at 15:28 | #72

    The point I am getting at is that mining does not really add much value in the same sense that other economic activity does. If I find a large gold deposit I haven’t really created any value. The wealth is put in the ground by nature. It is not as though I invented some new chemical process of turning worthless rock into more valuable material.

    For the most part I agree with the contention that miners are largely rent-seekers who are simply exploiting an existing resource they did not create and essentially belongs to all. Of course, the very nature of government control is that it tends to be a haven for rent-seekers who can use their political influence to get access to common resources on unfair terms.

    Miners essentially just dig wealth out of the ground. So long as the charges for doing so are not so high that it becomes uneconomic to dig wealth out of the ground and sell it, then there is no problem. And so long as it does not become uneconomic to prospect for new mineral deposits.

  73. Freelander
    May 12th, 2010 at 15:37 | #73

    As far as cigarettes go, a good policy approach would be to attack tobacco company profits. If the profits were taxed especially heavily in a way that made the companies disentangle the tobacco company from the conglomerate and made selling tobacco not such a good earner, they would cease to work so hard pushing their product and funding their pushers, and mouth pieces. That would be the real way to put the boot in, and slow them down. What is sad is that the measures taken so far have still left their trade highly profitable. I would like to see the industry reduced to the point where their senior executives can only afford to live in parks under discarded newspapers, and are forced to supplement their meager company incomes, meager including bonuses, with eight to ten hours a day of begging. Now that is what I call a policy performance indicator.

  74. May 12th, 2010 at 15:51 | #74

    @ James – thanks for pointing me to what this notion is all about. I suspect it’s been developed by a wealthy 25-year-old male. Too many flaws to even know where to start. As they say – “it’s not even wrong”.

  75. Freelander
    May 12th, 2010 at 16:05 | #75


    It’s not even wrong because it is entirely correct and the idea has been around for a very long time. A big promoter of the idea was Henry George.
    One attractive feature of the approach is that property booms would be a thing of the past. Hence, people wouldn’t get extraordinarily rich simply because they were rich in the first place. Most of the value of land is in its location relative to other things. After land is purchased other things come into existence and they by being located nearby increase the value of a piece of land. This increase is hardly due to anything the land owner does. Much of the value of land can result from government activity and provision of a variety of services. If the government rents the land, at an appropriate price, then as well as being a good source of revenue, the government also has a stake in promoting policies that increase the amenity and hence value of the land. Converting things so that the government is effectively the sole owner of the land and rents it out to everyone is probably far to difficult to do. However, government by charging significant rents (not full rents) would reduce the price of land, making ownership easier, because effectively government would be part owner. This approach has a lot merit and is well understood by economists.

  76. Monkey’s Uncle
    May 12th, 2010 at 16:06 | #76

    In the case of farming, farmers are only really in the same category if they make their living by excessively exploiting a common resource. For example, if farmers obtain large amounts of water at artificially low prices that do not reflect market value or opportunity cost, then they are indeed rent-seekers who are living at the expense of others.

  77. Monkey’s Uncle
    May 12th, 2010 at 16:14 | #77

    The only possible quibble I have with John Quiggin over this is on the macroeconomic arguments. Taxes which raise more revenues during economic booms are only really countercyclical if the extra revenue goes towards improving the budget bottom line rather than being spent.

    If the extra revenue is spent rather than saved, then an overall increase in tax revenue and expenditure is normally pro-cyclical. That is because it leads to a slight increase in consumption and a slight reduction in net savings across the economy, thereby increasing demand instead of dampening demand.

    The best policy would be to put the revenues from resource booms into a special fund, and then spend them during economic downturns.

  78. Freelander
    May 12th, 2010 at 16:28 | #78

    @Monkey’s Uncle

    Regardless of the pattern of spending the tax is countercyclical. Proportionally more tax is taken out during booms than during slowdowns. The government’s decisions about their pattern of spending has nothing to do with whether the tax is countercyclical or not.

  79. James
    May 12th, 2010 at 16:37 | #79

    I am a bit surprised to learn that Adam Smith, Ricardo, Mill, Marx, Keynes and Friedman, all of whom advocated this form of tax – about the only thing they all agreed on – were “not even wrong”.
    Any other cornerstones of economic thinking you’d care to overturn while you’re at it?

  80. May 12th, 2010 at 16:47 | #80

    Hi James. I didn’t mean to offend you. I didn’t realise you were advocating this. And no, that’s enough ‘overturning’ from me for now. I didn’t realise all those old economists advocated this as the sole source of government revenue – maybe I’ll have to go back to school – lol. Of course times were different back then. And given that it’s not been introduced I suspect a lot of other people think the way I do.

    BTW – to clarify, I figured the person behind the petition was not necessarily wealthy – but a very young, very high income earner, salaried employee, married or about to be so, and male.

  81. Ben
    May 12th, 2010 at 16:49 | #81


    The point you’re missing is that mining consumes non-renewable resources. Farming* and fishing** doesn’t. Once that ore/coal/etc has been dug up it’s gone forever.

    *water is renewable; topsoil was the closest to a non-renewable resource I could think of but even that regenerates (although not very quickly in Australian conditions) plus it’s in the farmers’ interests to conserve their topsoil as much as possible.
    ** as long a they don’t over-fish their resource.

  82. Monkey’s Uncle
    May 12th, 2010 at 16:49 | #82

    Freelander, I am well aware of the fact that (taken in isolation from spending) such a tax is countercyclical. Thanks for pointing out such basic things that apparently no-one else is capable of working out.

    Such an observation is of limited value though in terms of assessing the practical impact on public policy, because government spending decisions in the real world are not made in a vacuum completely isolated from other considerations like the amount of revenue available.

    All I am suggesting is that such a tax is only countercyclical if the government practices fiscal discipline. In the hands of an irresponsible government, it could well produce a net result which is procyclical.

  83. Freelander
    May 12th, 2010 at 16:53 | #83

    I wouldn’t be sure about that they asserted it as the ‘sole source’ of revenue. Depends on how much revenue is required. But there is little doubt that it is an excellent source of revenue with a lot of attractive features. Times may have been different but the analysis has withstood the test of time. Addition has been around for a long time too, but numbers still seem to add up the same as they did back then, when ‘times were different’.

  84. Freelander
    May 12th, 2010 at 16:56 | #84

    @Monkey’s Uncle

    I wasn’t concerned about anyone else. Simply your not working it out.

  85. Freelander
    May 12th, 2010 at 16:58 | #85

    The tax is countercyclical. That doesn’t mean that a government is not able to do other things that are procyclical that may overwhelm the impact of the tax.

  86. James
    May 12th, 2010 at 17:01 | #86

    It was mentioned on a Radio National program about urban planning in Sydney recently that 12 people or corporations own more than 50% of the Sydney CBD. Think about how much rental income they would be getting, and how much money they could throw into political donations, then ask yourself again why a tax on land rent might not get introduced very often.

    The major political objection is that it would lower house prices, which is good on the whole but hurts people who have taken out large bank loans to buy a house or retirees planning on negative mortgages. The usual proposal is a phased introduction that exempts first owner-occupied houses with an unimproved land value of less than $500,000 or so. Another objection is that it might hurt marginal farmers, but if the farmers are on marginal land they are unlikely to pay any tax to speak of anyway.

    It’s very important to understand that an ideal land tax is only on unimproved value. Unlike rates, CGT, etc, it doesn’t tax improvements made to the land (e.g. building a house).

    You might be interested to know that the ACT was originally intended to fund itself this way, which is why all land in the ACT is technically rented from the government, but the system was emasculated sometime in the Menzies era IIRC.

  87. Monkey’s Uncle
    May 12th, 2010 at 17:52 | #87

    Freelander, what you don’t seem to understand is that governments generally raise taxes in order to provide revenue to fund their expenditure. They don’t normally just levy taxes solely to take money out of the economy. So you are confusing ends with means.

    Your argument is akin to saying that all wages or profits are countercyclical, as at the point of transfer they represent money being taken out of the economy and into private hands. The fact that this money may end up being spent, and thus stimulate demand, is apparently of no consequence.

  88. Freelander
    May 12th, 2010 at 17:59 | #88

    I am not making an argument. I am just clarifying that the tax is countercyclical.

  89. Michael of Summer Hill
    May 12th, 2010 at 18:46 | #89

    Update, Update, Update, Tony Abbott fails to grasp the economics of Resources Rent Tax without producing any evidence to substantiate his claim that the new tax will ‘strangle growth’. Abbott is all bull.

  90. Freelander
    May 12th, 2010 at 19:04 | #90

    But bull sells. Unfortunately.

  91. Michael of Summer Hill
    May 12th, 2010 at 19:35 | #91

    Not so fast Freelander for Abbott has made a big false claim which cannot be substantiated.

  92. May 12th, 2010 at 20:11 | #92

    Well Abbott’s first claim was that the RSPT was Rudd’s plan to kill the mining boom stone dead.

    It doesn’t get any sillier than that.

  93. Damian
    May 12th, 2010 at 20:39 | #93

    Ok, ‘we’ own all the minerals. I can’t believe that we let miners basically steal our stuff like this! If we really own the minerals collectively, I say 90% tax and why wouldn’t we want the dividends in regular cash payments. I’d like to quit my job and live of the dividends.

  94. Freelander
    May 12th, 2010 at 20:55 | #94


    You might want to, but even in good years there isn’t enough. The super profit last year was $90billion. Even if we grabbed the lot, and we are only taking back a measily 40 per cent in the proposal, it works out about $4,000 per person. The services government supplies cost considerably more than this so there isn’t any left over for you to quit your job and live off the dividends. Even if you did get $4,000, I am not sure $80 a week would help you sleep any sounder in a park somewhere. If you based your early retirement on the 40 per cent being proposed that would only be about $30 per week.

  95. Freelander
    May 12th, 2010 at 21:02 | #95


    If you are wondering where all the money the government collects goes… Well, for starters, it costs a lot of money just to protect the rest of us from those sleeping in parks.

  96. Alice
    May 12th, 2010 at 21:10 | #96

    @Michael of Summer Hill
    Who really here expects Abbott to come up with a decent policy….when Howard first got in, Abbot was holed up in a room somewhere writing the most neoliberal of neoliberal agendas… the plan for Iraq (mistake), the plan for boat people (lies and a mistake) and the plan to screw our youth (workchoices) and the plan to screw our single mothers and other poor (welfare to work).

    So who here thinks Abbott is worth voting for? He is (was and still is) a Howard neoliberal bootlicker and has nothing to offer us now. Would he have thought up the resource rent tax, now?


  97. Alice
    May 12th, 2010 at 21:40 | #97

    You kill me Freelander…every thought of starting your own comedy show??!!

  98. Jarrah
    May 12th, 2010 at 21:43 | #98

    “If you throw farmers into the mix, then you also need to throw in all people who use land in any way, shape or form, including residents and businesses who own land.”

    Exactly my point in my original comment. I don’t see a problem with that – I’m a vacillating Georgist.

    @Monkey’s Uncle
    The value comes from the investment and work needed to get the gold out of the ground. It’s worthless while in the ground, and human effort gives it value – same as everything, really. Which begs the question – why is it being singled out?

    You give one possible answer to that question – a one-time resource has a different character to a renewable one. But does it give us a reason to tax it differently? Do we want to preserve iron ore and whathaveyou for some later use (or non-use), and therefore should discourage its extraction by taxing it heavily?

  99. May 12th, 2010 at 21:52 | #99


    I suspect the issue might be Jarrah, that minerals are rather like a treasure chest. They are seen as a one off thing which you sell once and alienate forever. Also, flogging these off can lead to windfall profits that are one time only. If we sell them, opur descendents can’t. It’s like Nauru and super phosphate.

    So it is different from, say selling education, which is less profitable but more sustainable and less volatile as an export earner. And we haven’t even mentioned “dutch disease”.

  100. Freelander
    May 12th, 2010 at 22:11 | #100


    I particularly liked the Howard government’s plan to get older poor folk back to work, or ‘work till you drop’ as I liked to call it.

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