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Resource rent tax statement

May 26th, 2010

I’ve been busy for the last few days, working on a statement by a group of economists in support of the principle of a resource rent tax to replace existing royalties. The statement calls for informed debate about the proposal and takes no position on particular design issues, such as the choice between the existing system used for the Petroleum Resource Rent Tax (40 per cent on returns above about 11 per cent) and the government’s proposed Resource Super Profits Tax (40 per cent on returns above the bond rate, with a corresponding offset for returns below the bond rate).

My own view is that the RSPT design would be more efficient, but the losers under this design (those who can confidently expect high profits) have been very vocal, while the potential gainers (smaller miners undertaking riskier projects) have not given the government any support. Add to that the fact that the PRRT design is long-established (making scare campaigns a little bit harder) and simpler and there is a strong political case for a compromise along these lines. The most important thing is that the government cannot and should not back down on the basic principle of a resource rent tax.

Here’s the Press Release and Letter.

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  1. Freelander
    June 7th, 2010 at 11:55 | #1

    “The RSPT is superior to current arrangements because..” Sounds suspiciously like support…

  2. Jim Rose
    June 7th, 2010 at 12:01 | #2

    @Freelander

    Wrong again when you say that ‘The asymmetry is rather trivial especially given that only 40 per cent of the “money for nothing” is being clawed back.”

    If the promise to pay for 40 per cent of mining and exploration costs were genuine, take the equally trivial step of issuing government bonds that are cashed over the course of and at the end of the project, as suggested by George Fane and Ben Smith, as I recall.

    Without credible commitments such as the issue of earmarked government bonds, the so called resource rent tax is just another company tax that will go up and down with political fortunes. It will not be neutral in its effects on mining exploration and depletion.

  3. Freelander
    June 7th, 2010 at 12:20 | #3

    Jimbo your frequent need to appeal to authority ‘ is a discussion stopper’.

  4. Jim Rose
    June 7th, 2010 at 12:33 | #4

    @Freelander

    Your obsessive posting of insults to me is jamming the recent comments listing today with spam. Have some courtesy to other users and the readers of other treads.

  5. Freelander
    June 7th, 2010 at 12:37 | #5

    @Jim Rose

    Have you considered that your comments might be interpreted as spam and that you consider “your frequent need to appeal to authority ‘ is a discussion stopper’ ” insulting because the truth of it makes your posts risible?

  6. Freelander
    June 7th, 2010 at 12:38 | #6

    Similarly…

    ““The RSPT is superior to current arrangements because..” Sounds suspiciously like support…”

  7. Jim Rose
    June 7th, 2010 at 12:41 | #7

    @Freelander

    You should be aware that to undermine a proposal you should first express complete support and a little while after that then start pointing to its flaws.

  8. Alice
    June 7th, 2010 at 12:46 | #8

    @Jim Rose
    Like you do JR? (JR – now where have I heard that before?) So JR hones in on one very mildy ambiguous comment from one on the list of 22 respected (yes respected by lots of normal people) economists, who support the RSPT, and unfurls his little flag and shouts “victory” to his vanquished army of one supporter here (hobo two).

  9. Freelander
    June 7th, 2010 at 12:56 | #9

    Jim. I am sorry if you feelings have been hurt. But. You’re supplying your self parody, I am only underscoring it.

  10. Jim Rose
    June 7th, 2010 at 17:11 | #10

    @Freelander

    The only difference between the RSPT and the current company tax is you can carry forward your losses with interest.

    The RSPT is a resource rent tax if there are cash refunds on a pay as you go basis.

    The letter of 22 economists says “The following economists support the introduction of a resource rent tax to replace existing royalties.”

    The RSPT is not a resource rent tax.

  11. Freelander
    June 7th, 2010 at 18:29 | #11

    Good we have that clear. Due to trivial differences “The RSPT is not a resource rent tax.” But there I am, appealing to authority. Or not appealing or not authority?

  12. Jim Rose
    June 7th, 2010 at 18:51 | #12

    @Freelander

    To be a resource rent tax, does it have to be just labelled a resource rent tax by a politician, or are your standards a bit stricter?

    What are your minimum design parameters for a tax to be resource rent tax?

    What differentiates a resource rent tax from a special company tax on mining?

    If the differences are trivial, as you say, do you have any objections to cash refunds upfront for exploration and mining? The differences with carry forward losses is trivial, as you say.

  13. Freelander
    June 7th, 2010 at 18:56 | #13

    I didn’t know Ken Henry was a politician but, then, I learn many things on this blog.

  14. Jim Rose
    June 7th, 2010 at 19:22 | #14

    @Jim Rose

    what differentiates the Resource Super Profits Tax from a resource rent tax?

  15. Michael of Summer Hill
    June 8th, 2010 at 00:53 | #15

    Update, Update, Update, it seems Labor has been vindicated for Clive & Co have openly admitted to exaggerating and stretching the truth. Drongos.

  16. Fran Barlow
    June 8th, 2010 at 09:41 | #16

    Strictly speaking of course, it is not actually a tax. It’s more like an equity agreement in which the government offers to underwrite some of the costs and losses in exchange for some of the profits.

  17. Jim Rose
    June 8th, 2010 at 10:28 | #17

    @Fran Barlow

    Good description. An underwriting agreement.

    The snag with the current proposals is the government as underwriter pays out only if you have profits elsewhere as an offset.

    In addition, the underwriter can rewrite the rules of the game.

  18. Fran Barlow
    June 8th, 2010 at 10:54 | #18

    In addition, the underwriter can rewrite the rules of the game.

    In practice not.

  19. Ernestine Gross
    June 8th, 2010 at 18:15 | #19

    Strictly speaking it is not an equity agreement.

  20. June 8th, 2010 at 18:31 | #20

    Update, Update, Update, MoSH copies yet another fax from Sussex St.
    .
    In reality, of course, Clive’s latest update merely confirms what we all know – this is going to, at the very least, delay a lot of expenditure.
    .
    Fran,
    In practice an underwriter cannot change the rules unilaterally. As we have seen with this example, though, a government can do so and is likely to do it in the future.

  21. Michael of Summer Hill
    June 8th, 2010 at 18:38 | #21

    Update, Update, Update, according to the latest reports Rudd argues that ‘the core principles behind the tax were right and encouraged voters to take the statements of mining companies with a “grain of salt”. Yes that is wright with a “grain of salt”. Thumbs up Labor.

  22. June 8th, 2010 at 19:07 | #22

    MoSH,
    The fact that grain will in the future be mined elsewhere is neither here nor there, is it?
    .
    Is that all that was on that fax? Surely the ALP could have written a longer one.

  23. Alice
    June 8th, 2010 at 19:11 | #23

    @Andrew Reynolds
    Andy “this will delay a lot of expensiture” Rubbish and you know it – but then it is your game to sell mining shares so keep looking after your share prices you speculative banker.

  24. June 8th, 2010 at 19:21 | #24

    Alice,
    Read what Clive said and MoSH appears to be happy to endorse it – even if it hurts his case. Good to see some honesty for a change.
    .
    Last month I held no mining shares at all. I have been buying a few over the last month as I am confident that Rudd will either jellyback on this or lose.
    I have never sold mining shares (or any other shares) to anyone. It is not the job of risk to sell anything at all.

  25. Alice
    June 8th, 2010 at 19:31 | #25

    @Andrew Reynolds
    No Andy the job of risk management is to diversify risk all around the financial markets…and how you do that is anyone’s guess when financial empires dictate who will bear the risk and when with a posse of employees and control of large sums of money (market making sums of money). You dont know, probably any more than I do, how to diversify risk Andy. Its a great big casino and you are playing against the big guys…but who am to rob you of your claimed “risk management” expertise. I dare say managing risk will get to the money hidden under the rafters soon.

  26. Jim Rose
    June 8th, 2010 at 19:34 | #26

    @Alice

    So you say that the Resource Super Profits Tax will not delay any expenduture? Will the Resource Super Profits Tax increase mining project expenditure?

  27. Alice
    June 8th, 2010 at 19:47 | #27

    @Jim Rose
    Yes I will say and no it wont delay any mining expenditure that wasnt already gpoing to be delayed for business reasons. Right now the miners are saying “well we will delay project X because of RSPT and well delay project Y due tob RSPT when they know damn well exploratory drilling at project X and Y yielded zip…and they were going to delay the projects anyway.

    Convenient – now they can blame it on RSPT and run large ad campaigns. Creepy. The Miners are running governments are they? Creepy and corrupt and their tentacles are everywhere….right into parliament house, where they have their annual greedy buffoons dinners.

    Ewww. Nasty greedy bullying companies if you ask me – with not an ounce of a sense of responsibility to this country, the Australian people, their tax obligations or to my offspring who own these mineral resources as much as these thieving bastards do. How dare they strip the resources out and contribute very little from under our noses and under our watch. Are we all wimps? (really?). Vote for Abbott then if you are wimps – he will hand it to them on a silver platter for nothing except a donation to his tiddly weird political party. Wake up Australia. The people are half asleep.

  28. June 8th, 2010 at 19:56 | #28

    Alice,
    In that comment you show how little you know about what the function of risk management is. Congratulations – ignorance really does seem to be bliss.
    .
    With the second comment you show how little you know about company announcements and the simple fact that lying in them is at least a cause for civil action and possibly criminal action, both against the company and against the directors individually.
    Well done – two outstanding examples of ignorance in two comments. I am sure you can do better, though. Try for three in two.

  29. Alice
    June 8th, 2010 at 20:06 | #29

    Andy – you live in your own world not the real world…where everyone can take advantage of your useless risk management strategies… in a world where risk has become so large no amount of diversification can help your clients.

  30. Michael of Summer Hill
    June 8th, 2010 at 22:10 | #30

    Andrew Reynolds, the Government is committed to Resources Rent Tax and if everything goes to plan the initial draft of the resources tax legislation will be completed next year and a parliamentary vote taken in 2012. In the mean time the Australian public will have to choose at the next election whether or not they want ‘an increase in employer super contributions’. I know where my tick will be. Thumbs up Labor.

  31. Jim Rose
    June 8th, 2010 at 22:35 | #31

    @Michael of Summer Hill

    The RSPT is becoming increasing hypothetical because Rudd is its champion.

    Admitting that Abbot could win the next election if the latest polls are correct!

    A skilled political operator would have the ability to avoid saying that, turning temporary adversity to his advantage, and set the ground for a comeback. Little wonder that Rudd turned what he thought was a vote getter into a loser of mining and regional seats.

  32. June 8th, 2010 at 22:47 | #32

    Congratulations, MoSH.
    Several errors in there – and I cannot suggest that you put a tick down. That way your vote won’t count. Put a “1″ (and then number every box) so that it does. At the moment, though, it looks like you may be in a minority.
    Another error was the date of any vote on the RSPT (if it occurs). The timetable at the moment would have the vote in the session after the next election so that the tax could be implemented in 2012. As it is a very complicated tax it will take at least that long for everyone to fully work out the impacts, hire appropriate lawyers, accountants and other advisors to get this right. At least a few of my former colleagues will be making a lot of money out of consulting on this. I might get back into business on this one too. There has to be a little sliver lining in this.
    .
    Alice,
    Diversification is not the best risk management strategy for most people. But then, you must know that, right? I mean you seem to know this business well.

  33. Michael of Summer Hill
    June 8th, 2010 at 22:55 | #33

    Andrew Reynolds, good to see your mates will be making money out of the Resources Super Rent Tax. Have a good night.

  34. Freelander
    June 8th, 2010 at 23:17 | #34

    @Jim Rose

    Yes. It already has increased mining expenditure. Look at all the advertising they are doing that they wouldn’t have done otherwise.

  35. Freelander
    June 8th, 2010 at 23:19 | #35

    @Andrew Reynolds

    Hobo Two. Still mastering your own, be it small, universe, I see. They live by different rules there.

  36. Michael of Summer Hill
    June 9th, 2010 at 07:19 | #36

    Update, Update, Update, the Minerals Council of Australia has released a new television advertisement confirming Treasurer Wayne Swan’s admission that some miners could be paying up to 58 per cent tax under the Resources Super Rent Tax to pay for reforms. Thumbs up.

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