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.
John Quiggin 
@Ernestine Gross
Ernestine
As Crikey notes perhaps Alan Kohler should have mentioned a few other things about Twiggy and the Mining firms and the donations being showered on the liberals lately (for falling into lockstep with their hysterical objections to the RPST).
http://www.crikey.com.au/2010/05/24/miners-should-spend-200m-on-campaign-but-be-open-about-it/
@Alice
Your post doesn’t follow from the point I was making.
My point was that according to Christopher Joye, http://www.abc.net.au/unleashed/stories/s2910009.htm, Andrew Forrest not only wants to continue with existing mining projects but has further projects planned. This clearly contradicts the assertions that the proposed SPRT will result in the cancellation of mining projects.
A. Forrest’s alleged problem is that banks don’t want to lend. If the proposed SPRT is the source of the financing difficulty, as is suggested in the said article, then there is the possibility of raising finance via redeemable preference shares with dividends that correspond to an after tax payment equivalent of a long term Aussie bond rate of say 6% (ie. 8.3% p.a., with corporate tax rate being 28%). Surely superfunds would be (or should be) keen to buy such paper given that there is nothing better on offer. Further, if mining is indeed risky then equity financing would be suitable. By equity finance I mean issuing shares to the public for the purpose of financing mining projects (rather than diluting existing shareholders’ interests buy issuing shares to management and directors without full payment).
@Alice
Your post doesn’t follow from the point I was making.
My point was that according to Christopher Joye, http://www.abc.net.au/unleashed/stories/s2910009.htm, Andrew Forrest not only wants to continue with existing mining projects but has further projects planned. This clearly contradicts the assertions that the proposed SPRT will result in the cancellation of mining projects.
A. Forrest’s alleged problem is that banks don’t want to lend. If the proposed SPRT is the source of the financing difficulty, as is suggested in the said article, then there is the possibility of raising finance via redeemable preference shares with dividends that correspond to an after tax payment equivalent of a long term Aussie bond rate of say 6% (ie. 8.3% p.a., with corporate tax rate being 28%). Surely superfunds would be (or should be) keen to buy such paper given that there is nothing better on offer. Further, if mining is indeed risky then equity financing would be suitable. By equity finance I mean issuing shares to the public for the purpose of financing mining projects (rather than diluting existing shareholders’ interests by issuing shares to management and directors without full payment).
Sorry, something went wrong there. I intended to submit only once.
I just had a look at the EY ‘paper’. Essentially a waste of dead trees. Another waste of dead trees was an article in the Fin today written by someone identified as a tax expert and a poet. Lets hope he is a better poet.
The profusion of nonsense being written and said about this tax proposal, particularly in the Murdoch media, is reaching a truly sickening level. As an environmentalist, I would like to see a retrospective tax on this wasteful advertising campaign that the industry has launched against the proposal. These whole page newspaper ads are simply leading to the wholesale slaughter of trees. And, as they say, death for no purpose is murder.
And Murdoch expects people to pay online for his ‘journalism’. Why should people pay for the offerings of journalists when so many non-journalist currently provide much better and balanced reporting and analysis for free?
@Ernestine Gross
But Twiggy’s actions fit in with that all they have been doing is telling porkies for profit. The claims about financing could quite simply be more p for p. If he squeals on that topic loud and long enough, he probably hopes for concessions on those projects in one form or another. And far too often concessions happen. Shaving some points off the loans, or state or federal government providing some other form of concession.
Freelander, if you follow Rudd’s logic one finds the Opposition has three different positions in relation to the new Resources Rent Tax for some little Liberal bears think mining companies pay too much tax, some think it is just enough, and some thought they should consider a profits-based tax after all. Now I am totally bamboozled as to what is the Liberal Party’s true osition in relation to the Resources Rent Tax. What a rabble.
True. But history has shown that rabble do get voted in sometimes. The confused and stupid seem to like electing one of ‘their own’ sometimes.
@Freelander
EY circular. In the absence of a tax on PR, I apply the rule: Ignore all margin comments and everything in large print or highlighted in some other way (ie all ‘they’ want you to read) and search for technical detail. I found the technical part of the EY quite good.
Freelander, 28, very true. You obviously have the British election, when you talk of “that rabble… (the) confused and stupid seem to like electing one of their own”; you must be talking of British geriatric (or just meanspirited) Tory voters, egged on by Ruperty Murdoch.
Ernestine,
The day I believe anything from Twiggy is the day I buy FMG shares – i.e. never. He’s way too risky.
I will, however, listen to what BHP and Rio CEOs are saying. They can’t afford to overstate too much as they are likely to be around for the long term.
That said, you will have to enjoy this debate without me for a while – I am off to parts foreign for a week. I may have an internet connection or the hotel may be charging the usual extortionate rate that I will not pay on principle.
@Ernestine Gross
I agree with you that Twiggy is lobbying hard, but when you say “Surely superfunds would be (or should be) keen to buy such paper given that there is nothing better on offer” there is something ‘better’ on offer – Government bonds.
I don’t want my super fund to think preference shares from FMG are the same risk as AAA rated government bonds.
Twiggy will need to pay a premium for the higher risk that will dilute his equity return. Therefore, if the government does not pay him that premium on the 40% they do indeed have a distroting tax.
Mostly what he is saying is hyperbole (bankers not lending, sovereign risk etc), but there are serious issues here. I find it interesting that the 20 economists put out a letter saying we all agree on the concept (that is the easy part), but in the debate on the detail they are missing. Even on this blog people appear to be either for it or against it, there can be no acceptance that the concept is good but recongise that there are big losers in the design and extremely important design issues to be dealt with.
@Ernestine Gross
Says
“Further, if mining is indeed risky then equity financing would be suitable. By equity finance I mean issuing shares to the public for the purpose of financing mining projects (rather than diluting existing shareholders’ interests by issuing shares to management and directors without full payment).”
Would seem quite sensible and moderate and prudent Ernestine – but was has been demonstrated by the behaviour of senior executives, against the wishes of the majority of shareholders in many firms – we do not live in moderate times.
While I’m in no position to argue about what exploration companies may or may not do, this explanation seems incoherent. Prices of commodities can be assumed (as a first approximation) to follow something of a random walk. Given that it takes some time (years?) between exploration and bringing a mineral to market, why should the price now influence the decision whether or not to explore when the price will probably be different by the time the mine is built and starts producing?
More generally, the point is that, given mines have a long life, miners presumably make calculations on whether or not the whole process (exploration successful and unsuccessful, development, production, etc) will be profitable based upon the average expected profits over the life of the mine, that is, on the long-term average price, not the price during boom years. Arguing that the boom years pay for the dross, as you do, implicitly accepts this; the miners are investing for the long term average return.
If this is the case, then the RSPT, which as Christopher Joye explains chops off 40% of the profits AND 40% of the losses, will have very little impact on the long-term profitability of the sector. It changes the risk/reward profile of the sector in a more conservative direction, less risk and less profit over the cycle. As miners traditionally are roulette-playing cowboys, this may cause some of them to quit Australia, but the gap will be filled by other investors who are looking for more secure investments than classic “penny dreadful” mining stocks.
I am quite willing to agree that the government has bungled the announcement somewhat and created needless uncertainty in the sector. But this doesn’t affect whether the tax is workable in the long term.
@Jason
You are having a conversation with yourself. Alternatively put, your post has essentially nothing to do with any of my posts on this thread. I don’t have the time or the patience to do disentanglement work.
@Ernestine Gross
LOL Ernestine – fair call. I find it a little tangled myself.
Too much time is lost in designing and marketing optimal resource taxes with supposedly neutral effects on exploration and depletion.
If you want to put taxes up on mining, just say that is what you are going to do.
In doing so, admit that it might cause people to change their investment plans to some degree. The price of the additional revenue is this risk and you are willing to pay it.
Why is Rudd tying himself into knots trying to say he has found a tax without downsides?
Too many good ideas are lost into the political mire because people are unwilling to admit that a proposal has both pros and cons, and will have both winners and losers. These effects for good and bad can be discussed and compared openly and then Parliament takes a vote.
If the tax turns out to be such a terrible thing and exploration crashes won’t that be fairly easy to detect and reverse?
If we did something to the manufacturing industry that greatly damaged it there might be difficulty rebuilding because skills would have gone offshore. With mining the loss of skills might matter a bit, but the main thing is the presence or absence of minerals, which the tax won’t change, so it would be easy to assess the damage and either reduce the rate or change the point where it kicked in. Since we can only mine stuff once our long term wealth would be pretty much the same, just somewhat delayed. Not the case with most other industries.
Moreover, if Brazil and India follow in our wake that will make money available to be redistributed to some very needy people – a huge win for the planet.
@Jim Rose
The proposal does have pros and cons.
It is good for Australia and may even lead to some otherwise unprofitable projects going ahead. On the con side it is bad for some greedy bludgers who were hoping to continue to get what they were getting unrequited and for free into an endless future. My heart does bleed for their loss. But I will simply have to bite my lip, for the good of the country, and get over it. I suggest they do to.
There is nothing for Rudd to admit.
Ken Henry has spoken, so has JQ, and we can believe them, but then, if we are economists (and even for some who are not) we don’t even have to believe them, because we know they are right.
Rudd has done a particularly poor job of selling it. Lets hope they replace him with Gillard after the election. For starters, it should be called a user charge, not a tax because it is simply recovering money for use. Very quazi-socialist of some to think we should simply continue to give it away as we currently are, and somewhat perverted too, given to whom they think we ought to be giving it.
I have never come across such unbridled support for totally undeserving bludgers as the legion that have presented themselves against the tax. Even farmers, who can call on many who are happy to wail in support of any of their undeserving bludging must be envious of how loud and numerous this particular support choir is. These bludgers ought to be made honorary Greek non-taxpayers as they are displaying a similar attitude of entitlement to what they don’t want to pay for.
Good that they government is going to counter the misinformation campaign the mining lobby has started. I think it is only fair that they now raise the tax a bit more to cover the cost of this necessary information campaign.
I am perplexed about the “too much time” comment as the whole thing is fairly straightforward. Other than the perpetually challenged (yes, I know you have pointed out they get votes too, and sometimes one of their own to vote for), the only people who seem incapable of understanding it are those who have made a positive choice not to understand it.
At the RIO AGM the Hunter Valley coal miners asked questions about
* why the managers institute a witch hunt against workers who contribute to the “Speak Out” program
* why do some miners get paid for 45 hours work when they work 42 hours like every one else
* how have management been able to not report reportable incidents ie safety breaches that could have led to lost time accidents or death
* why does the company hire workers on 457 visas when there are local contractors who can do the work and want permanent jobs
@billie
So it would appear that even the employment and jobs supposedly created by mining are going to cheaper 457 workers. Ill bet Andy didnt include the 457 visa workers employed in mining in his calculation of the jobs created by Mining in Australia. What about the local contractors able and willing to supply labour?. Now I understand why BHP or RIO buys up whole towns of houses in areas where it mines. So it can fly in and accommodate its 457 cheaper labour? So not only are they stealing our resources cheaply, they are ruining whole towns for locals who cant find accommodation cheaply when rows of houses are owned by the Mining firms, the same locals who wont find employment because the 457 visa workers can be flown in cheaper.
Ewwww – bring the tax in and fly the executives out on the 787 dreamliner.
457 labour is the type of perfectly compliant and readily disposable labour that only a truly ‘flexible’ labour market could provide. They don’t answer back and if they dare they’re back on the first plane. They’re better than slaves. With slaves at least some think you have some sort of obligation to them after you’re done with them.
Having heard some of the proposed advertising for the tax on super profits it appears to be not addressing the main claims of the opponents which is gaining traction ie the impact on the superannuation funds. If people think that their nest egg is in danger it is hard to get a rational argument across.
@Freelander
brings a whole new meaning to the words “they came, they saw, they plundered”
Ross Gittins is doing a good job in explaining the terminology and the rationale for the SPRT. He did so the other day on a smh video and today in :
http://www.smh.com.au/business/major-miners-generally-selfish-20100528-wle9.html
As I mentioned before – the tax increases will come to large organisations whether the TNT mob (take no taxes) like it or not. It is as inevitable as night follows day.
Cant you see the headlines from famous economists in the future in all the post mortems of the GFC which will inevitably flow…
“Never again will we sit back and let taxpayers funds be used to bail out banks”
A bank funded bail out fund sounds like a sensible tax to me…
“What I’m proposing is logical — banks paying for banks, not taxpayers,”
http://www.chinapost.com.tw/business/europe/2010/05/28/258460/Europe-moves.htm
No different to a mining funded resource tax. Large organisations having to give something back from their globalised super profits. We want a dig out fund. We want a bigger share of their profits to stay here. We want the global tax haven industry to suffer a major downturn like the rest of us.
Why is that so difficult for the Miners to understand?.
Already the first flickers of protectionism are starting in the EU with some banks in some countries complaining bitterly “why should we have to contribute to a bank bail out fund that is used to stop banks in other countries failing??.” Yet – this is the great “free movement of capital” Euro zone isnt it? The one where they have just banned short sellers. (Its not a country anymore – its a zone and they want a bail out fund – funded by banks).
John Ralston Saul would say we have all been here before – the contraction of globalisation is about to begin.
Freelander,
A well-designed resource rent tax makes the taxpayers, in effect, a silent partner in the mining venture. The taxpayer shares equally in the losses, as well as the profits.
How does this sharing arrangement differ from a public-private partnership with tens of billions of dollars in downside risk for the taxpayer but with no individual corporate ownership rights or other investor protections to influence risk taking and cost control for the venture? Ownership allows you to selected the uses of the asset and sell it. No such case with resource rent taxes. Resource rent taxes make the taxpayer the residual claimant on the mining lease but with no ownership rights or protections.
As the resource tax statement of Professor Quiggin notes “If the project does not make a profit, some of its costs are potentially refundable or otherwise claimable. This means the Government shares the risk associated with exploitation of our minerals resources.”
You may be happy for the taxpayer to postpone social spending to honour promises to write large cheques to cover the losses on the failed mining explorations of second rate entrepreneurs, I am not. Capitalism is a profit AND loss system.
As usual, the old left, the new left and the left-over-left are like all progressives – they are junior partners in corporate capitalism, providing not always unwitting rhetorical and political cover for bail-outs and privileges for the established big businesses. You are enabling the triumph of conservatism.
@Jill Rush
Yes, Jill, the implications of the SPRT for superannuation rates of return have not been fully discussed in public. It is difficult to do this without the benefit of an econometric model that allows numerical illustrations of possible scenarios and hence informed discussions of likely outcomes.
In principle it is quite straight forward. Keeping all else constant, the SPRT will reduce the variability of the after tax mining profits and therefore the variability of returns to shareholders. This is a good thing for individuals because their retirement benefits are more predictable. (The mantra that superannuation is for the long term is clearly nonsense for people who have a finite life.). Furthermore, if I understand correctly, the current government policy contains a redistributive element in the sense of increasing, in one way or another, the superannuation amounts of low income (low wealth) individuals. This is again a good thing because it is a small but positive step in reducing the possibly unintended negative consequences of previous governments’ superannuation policies that added to the growing income inequality. (I’d like to say here that my opinion is not a ‘bleeding heart’ one but it follows from the importance of the minimum wealth condition in theoretical models of non-dictatorial resource allocation.)
Empirically it is not as straightforward because of ‘other things not being equal’. There are many ‘other things’. To name only a few major factors from the recent past: Events in financial markets, natural disasters, wars or other major civil unrest, and man made natural disasters, alone or in combination, can temporarily swamp or dampen both mineral price booms and the stabilising effects of the SPRT.
The Australian government has no control over these factors. Hence the relevant consideration for policy formation is the in principle one. There is a limit to ‘evidence based’ decision making in the sense that if a new policy is indeed new and not merely a change in labels, then the empirical consequences cannot be deduced from past data.
The current media strategy by mining companies reminds me of the brinkmanship of Telstra under Sol. Sol is gone. Telstra needs a lot of rebuilding. Hopefully, reason will dominate guts-based brinkmanship on this occasion.
@Jim Rose
Admittedly, the ideological slanging matches you are engaged in, particularly on the successor thread, are quite entertaining and, true, you couldn’t do it on your own.
However, you come up with statements on economics that require a response for other reasons, namely they are misleading or misguided. For example, you write:
“Ownership allows you to selected the uses of the asset and sell it.” Nice belief. Lets check it with reality.
Corporate law is so weak in protecting shareholders’ interests that shareholders can’t even enforce payments of all profits as dividends and limits on managerial payouts.
Ernestine,
Thanks for your comments on corporate law analogies.
It is unusual and high risk for a landlord to lease out a property – in this case, mineral leases – and then become a silent partner with the tenants but with no decision control rights at all or any method to sell their silent partnership in the property lease. Would anyone want to buy into such arrangement but a government?
The option to sell is a very good legal protection to stem losses and punish poor profit performance. In corporate law, shares can be sold without the permission of other share owners. This is what makes them an attractive means of raising capital. You can get in and out quickly.
There is no similar ownership opt-out protection for a resource rent tax. Governments must keep postponing social spending to write cheques to failed mining entrepreneurs.
Resource shares are often dogs of an investment. Commodity prices collapse on a regular basis and can stay low for a long time. Oil prices have been all over the place and were low for extended periods in recent times. Resource rent taxes risk making the taxpayer the default underwriter of a high risk sector of the global share market. Who gains from this?
This sharing in the losses is simply the normal tax treatment of expenditure. If you have two projects and one makes a profit and the other a loss, you pay tax on your overall net profit not on the net profit of the profitable project. This government being a partner is simply an exaggeration. This way of treating business expenditures made with the intention of making a profit is simply the way most economist think they should be treated. Businesses don’t make profit on every single thing they do. This sharing and partnership furphy is simply nonsense.
Pr Q said comments closed, thread still open]:
After a few weeks of looking at this RRT I have to say my initially dismissive attitude towards it was shallow, facile and unfair to Rudd who I have generally characterised as an uber-“c”onservative. The tax is a brave political move, as can be judged by the size of it intended targets and the ferocity of their response.
You can always judge the efficacy of a policy by how much it hurts an organized interest group, going by the squeals of pain coming out of its lobbies and the hit suffered in the share market.
The tax (it should really be called a rent hike) is a genuine effort at making the tax rates “broader and lower”, and fairer to boot. With an added bonus that it is hitting foreign share owners in the hip pocket. Always good to get the “xenophobe” vote.
The imposition of this tax – if it passes muster in the legislature – marks the first instance in the Rudd-ALP’s swing to the Left. I have long predicted that the ALP will swing to the Left to position itself in the post-2010 political balance. They have nothing to lose by going Red, there are no more votes to be chiseled off the L/NP’s core primary vote of 40%.
This is given that the L/NP & FF will probably lose their upper house Right-wing ascendancy in the 2010 half-Senate election. The ALP will then have no excuses to not deal with the GREENs on matters such as ecological sustainability and fiscal equity.
So expect more moderate, Treasury-approved (Michael Pusey take that!) Left-wing policy from those quarters in the coming years. And ditto the US, whose polity will also have to oscillate some ways back to the Left if it wants to avoid Bush Ground-hog day forever.
But I doubt that the ALP or the DEMs will give in to Left-liberals on civil liberty or cultural diversity issues. To many snarling Right-“corporals” out their, still baying for blood. I’m off to Arizona for my holidays!
@Jim Rose
Re your posts @29 and @26:
@29: Corporate analogy? I have to correct your there. Comparing beliefs (ie your verbal theory) with observables, as I did, is not drawing an analogy, corporate or otherwise. It is the way we progress in economics and it is about as close to as we can get in economics to being scientifically minded instead of being dogmatic or scholastic.
You say @29: “The option to sell is a very good legal protection to stem losses and punish poor profit performance. In corporate law, shares can be sold without the permission of other share owners”
You say @26: “Ownership allows you to selected the uses of the asset and sell it. ”
With due respect, Jim, your writing causes work – disentanglement work – because @29 you don’t specify what it is that you can sell while @26 you talk about assets.
There are two types of ‘assets’ in economics, physical assets and financial assets. Indeed the profession has become so annoyed with the confusions created by talking about ‘assets’ only that it is by now common practice (outside accounting) to refer to financial assets as securities.
When substituting the professional language into your statements, they read:
Shareholders of publicly listed corporations have the right to sell their securities, called equity shares (or simply shares). They do not have the right to direct management to sell specific physical assets while the company is a ‘going concern’ and in the case of insolvency, they have the lowest rank in getting proceed from the sale of physical assets. This legal arrangement provides a chance for individual shareholders to limit their losses whereby those with better information and faster transaction technologies have a greater chance than others. The idea that the selling of securities ‘punishes poor profit performance’ is not a well developed one because it doesn’t spell out whose performance is punished. In the first instance, the selling of securities called shares reduces the financial wealth of the slower shareholders. Furthermore, it is clearly quite silly to punish the performance of ‘managers’ who happen to work in a company that is badly affected by say an earthquake and, alternatively, there is mounting evidence that the financial remunerations of corporate management is not a positive function of the profit performance. Furthermore, why should management of a company that operate in a functioning democracy that prohibits slave labour or apartheid conditions be ‘punished’ because their profits are not as high as those in other places in the unevenly developed ‘global village’? To answer my own question, these managers in functioning democracies should not be punished for not preferring slavery..
@29 you write: “A well-designed resource rent tax makes the taxpayers, in effect, a silent partner in the mining venture. The taxpayer shares equally in the losses, as well as the profits. ”
Further to Freelander’s reply, may I remind that ‘the taxpayers’ (ie the public) is always a silent partner in business. This is obvious because any business requires permission from the public, via the elected government, to operate.
I’ve been wondering. Is anyone here being paid to speak out against the tax? I am applying the principle of charity and assuming that at least some speaking against the tax do understand it and therefore wouldn’t be speaking against the tax for free.
If they are being paid could you refer your paymasters on to me? I would like to offer my services and am quite willing to say it’s a bad tax if a suitable price can be negotiated. I can offer petition signing services too, again for a suitable price.
@Ernestine Gross
Agreed. I am thinking Jimbo is getting some cash. I am interested in knowing how much and how we can get in on the deal?
The Rudd government’s takeover of health should also be interpreted as a mildly Left-wing move. Something that Howard also wanted to do, which just goes to show that the Left-ward tendency is cross-partisan, ie a shift of the whole, rather than a move along, fiscal progressive function.
Like everything Rudd does it will be micro-managed and spun-doctored to within an inch of its life. But he will have to do some Left-wing ideological entrepreneurialism, pure psephological managerialism is unpopular and hence self-defeating.
The L/NP will have no choice but to go along with me-tooism on this issue. Which is perhaps why they are grappling for issues on which they can plausibly oppose the ALP.
However their negative program, opposing ETS, is not really a long-term winner. And neither is their positive program of Work Choices.
In general the L/NP’s brain snap with Abbott in 2009 has set back its electoral prospects by three years. The analogy with Latham in 2004 is irresistible.
Hey Jack, we could easily have had Latham and we may yet have Cardinal Abbott. I wouldn’t rule the possibility out absurd as that would be.
@Freelander
Before you search for market capitalisation data to assist you in your no-negotiation price point, may I suggest you consider an alternative explanation. Good cash is being paid by students for latest publications that contain very very old information. Have mercy.
Ernestine,
I am not surprised that you, as a junior partner in corporate capitalism, welcome taxpayers being silent partners in every business.
I prefer a system where private profits mean private losses too. No bail-outs, ever. Let the capitalists lose their money if they make unsuccessful or ill-advised investments. If the capitalist make profits, the tax man is waiting.
But you want the tax office to be waiting for miners with massive tax offsets, tax rebates, tax refunds and even outright tax credits in cash for their past entrepreneurial failures. Moreover, the resource rent tax is to replace many state taxes with a single obtuse federal tax, a derivative of blackboard economics, where only one level of politicians needs to put in the miners’ pockets to get more concessions over time.
Your remark about every business needing government permission to operate further betrays your role in defending with glee the incumbent capitalists from free competition and those pesky new entrants. You seem to be more than happy for new entrants to have to jump over more and more hurdles. Who gains from your position that every new business needs permission to open?
Corporate capitalism arose at the start of the 20th century. Early 20th capitalism was going well for everyone except big business. The established large firms were repeatedly under attack from competition and innovation. Major businesses actively sought and supported many reforms and regulations to suppress the subversive effects of open competition and their own inefficiency.
Big business favoured tariffs and regulation because they feared competition and desired to forge a government-business coalition at the expense of many smaller competitors and many consumers. The larger capitalists saw regulation as being in their interest, and competition as opposed to it; for smaller businesses, the situation was reversed. The workers in larger businesses also temporarily gained at the expense of others through wage rises caused by restrictions on production.
Unions and progressive political parties became junior partners, providing the rhetorical and political cover in return for scraps from the table, tariffs and cross-subsidies, and jobs as cogs in the machine. The State functions to balance the interests of large economic power blocs while maintaining their common ascendancy in the face of potential threats from below. The push for a corporate state was from an alliance of big-business and intellectuals, eager to help run and apologise for the new system, which promised far richer niches than would a freely competitive economy.
@Freelander
Can I cut to the chase…
Poor old Strocchi is losing it and still chasing leftie ghosts years after the culture wars…
Jimbo is a tribal and is here to fill up the thread space on a lets help big ming make more profits to take offshore, not reinvest in the Australian economy, and fly in 452 visa workers, meaning the profits end up in the hands of the executives art collections etc…hanging on walls doing a productive zero for anything but capital gains for the execs.
Jim Rose – you are truly sad. You have mentioned every “fear ridden” bogey man that doesnt exist. TYou have dropped the “chardonnay socialist” line, the “unions are to blame – they were co-opted”, the state is to blame “for alliances with intellectuals and big business”
So Im having trouble discerning from this mass of comments and complaints and whinges against a variety of bogeymen, just exactly what your objection to the rent resources tax is????
Jim Rose,
Given your prose @38, it seems you were borne after your nirvana finished. How you can know, first hand, that your nirvana ever existed is a relevant question that cannot be discussed here because it goes well beyond the topic of this thread.
@Jim Rose
PS Jim give me the govt any day than free competition…that happens to have no new entrants because some large power or telecommunications company or media company (now three guesses who they might be?)…got their captive payers by the lack of competition regulation that permitted the bastards to merge into a megamonopoly…and laugh at us all the way to a foreign bank..the same sort of megamonopolies in mining who are digging deep into their deep pockets to wage a media war against a small (relatively) tax rise.
Now do I want a State in control of how much these mega monopolies pay in tax or do I want them just to pay their tax and feel good about it (and responsible about it) and not to feel like they have a right to rip the coal or iron ore out and avoid tax and pay their execs a fortune (as is currently the case – ie a major asset strip is going on in Australia).
I just want them to know the tax is there, realise it, shut up and pay it…and give up the media bullying about it. Does the government run the country or the mining firms?
Im beginning to wonder. They spend more time in the media than mines.
I also want the mining firms to think about how they are wastings hareholders funds fighting the tax with an ad campaign.
If you think the shareholders will do badly – they are doing badly already at the hands of self remunerating directors. If no-one can control these bastards shareholders will be doing even worse. Its not the pretty 1950s world of a “sense of corporate responsibility” from entrepreneurial spirits any more. Its a “how much can we fleece these stupid shareholders” and get away with it world.
You need a reality check and now. Its an ugly world of spin and theft we live in thanks to your precious quaint but ridiculous and naive notions of free markets that have been allowed to tie the hands of the regulators over the past three decades.
Freelander,
You as a foot-soldier of corporate capitalism do not need to know how you fit in to the larger game of political influence. Foot-soldiers never do.
Right now, resource taxation is by state, territory and federal jurisdictions, nine in all.
Resource taxation is a much more lively political issue in state elections.
An example is the distribution of the Western Australian state mining tax revenues was front and centre in the recent post-election coalition negotiations.
The resurgent WA national party was pursing a popularist agenda, demanding a bigger share of these mining tax revenues for country towns and rural areas. Naturally, the WA national party would be a counter-weight to any attempts to go soft on the revenue source they want directed to their feisty constituents.
Out of ideological blinkers, you want to move resource taxation into the black hole of federal politics where countless issues are bundled together at elections. Even better for corporate capitalism, you want all the current mining taxes to be replaced with an obtuse tax that is a bastard son of blackboard economics.
Your role as a foot-soldier of corporate capitalism is to push for federalisation of current mining taxes that are too transparent, too prominent in state revenues, and too difficult to capture across the current tax jurisdictions.
Big business can chip way at this new tax once it is federalised, safe in the knowledge that their efforts will be less well noticed and there is no political party dedicated to watching the level and sharing out of mining tax revenues. State elections can be fought on mining taxes, federal elections will never be. The current federal debate is as a stalking horse for the weakness and indecisiveness of Rudd.
Corporate capitalism does not need to ask your price. Because of ideological blinkers, you come for free.
@Jim Rose
So Jim – you say to my friend Freelnader
“You as a foot-soldier of corporate capitalism do not need to know how you fit in to the larger game of political influence. Foot-soldiers never do.”
So who are you…an Officer of footsoldiers?
Oh spare us. Freelander..unleash the full force of your humorous insults on this wannabe.
@Jim Rose
Jim Rose
You also say
“Big business can chip way at this new tax once it is federalised, safe in the knowledge that their efforts will be less well noticed and there is no political party dedicated to watching the level and sharing out of mining tax revenues.”
Sure Jim – if they could do this the miners wouldnt be spending seriously big money fighting the tax right now would they? You are a pain in the neck coming up with all this nonsense. And you dont answer questions. What exactly is your own personal objection to the tax? You have provided every fur[hy known to man execpt a genuine reason – oh and I note you dont answer me. Is that because my names Alice? So, not only are you elitist enough to call Freelnader a footsoldier but you dont respond to women…
Only because you dont have a sensible response.
Your arguments are empty. Completely blinkered one sided and empty. These firms owe a lot of tax. Id like it applied restrospectively. Its about time other businesses had the pressure taken off them if it comes down to a bunfight in Australia (which it has and which it should be).
If you are that desperate for a board position or as media pr on a mining firm – try writing to beg. Dont refer them to your arguments here though. You wouldnt get the job.
Alice,
Your role as a foot-soldier role in Australian corporate capitalism is to stir up jingoism and economic nationalism to protect domestic corporate capitalists from foreign competition.
Australia is resource and land rich, but capital poor.
Local Australian capitalists can earn a good return because they get the pick of the investment and resource crop drawing from a limited pool of domestic savings. Wages are low and profits high if there is a shortage of savings to invest. Workers earn more when they have more capital to work with.
The spoiler for local capitalists is these initially high profits were why Australia became attractive to foreign investors.
If capital moves from capital-rich countries to capital-poor ones such as Australia, it drives profits down and wages up in the countries it goes to and has the opposite effect in the countries that supply the new capital. Foreign capital will keep flowing into Australia until risk-adjusted local and international rate of return of capital tend to equalise. Even Karl Marx agrees on this point on how capitalism works.
To the extent that domestic political interest groups succeed in preventing foreign investment, they are benefiting the local capitalists by holding up profits and holding down the wages of the workers because there is a shortage of capital.
It would be interesting to know how much of the clamour against foreign investment is due to left-wing ideologues who do not understand how capitalism works and how much is by local capitalists and their allies who do.
Yes Jimbo. But how do I get my snout in the trough? I have to be charitable and think that you cannot mean much of what you say, and you couldn’t be saying it for free, that wouldn’t make much sense either, so how do I get paid for talking nonsense. Don’t worry, I am not going to get in a bidding war and undercut you, but I am sure your paymasters could do with another supporting voice to muddy the waters.
Alice,
There you go again.
Like all too many on the Left, unable to hide your contempt for the rule of law and having an undying lust for show-trials, you now want retrospective mining taxes.
When the next right wing populist gets in, and that could be real soon, and they come for you, I will only say, I told you so. Your nemesis at the door could just as easily be an ALP careerist clinging to office wanting to win the next news cycle. For a cruel and wanton example of old fashion gay bashing just to win the next news cycle, look at the disgraceful NSW ALP in the last week or so.
You appear to want unfettered power to be vested in whoever wins the latest election; and perhaps no Senate too? For all but 3 of the last 60 years federally, the winners were perhaps not really to your political liking. This makes you a real risk taker.
The opposition of some miners, but not others, to the new resource rent tax is due to what Gordon Tullock calls the transitional gains trap. This public choice hypothesis explores aspects of rent capitalisation.
Those mining companies who have capitalised much of the resource rents into their share prices will fight like hell. These rents will now be taxed so these particular miners will not want to suffer a large capital loss. Some of the resource rents are not capitalised because of sovereign risk over tax regimes. Some of the resource rents are fully dissipated because of a race for rents. There was premature exploration and early depletion to grab the resource rents before rivals found them and before possible tax hikes. The preference of the miners will be for federal tax but no higher a tax burden.
P.S. if separation of ownership and control leads to rampant managerial slack, as some on this blog have suggested with great gusto, why do mining executives care about the impact of this new tax on share prices? Why do they care about the new tax at all? The new tax will be paid by lowering dividends and cutting lower level wages. The pay-packets and office sinecures of top floor management and directors are not supposed to suffer because of inferior corporate performance. Their pay and perks are supposed to be set through collusion and top-floor intrigue, not performance. Corporate managers cannot be both lazy and unaccountable and profit driven, switching back and forth between these opposing motivational states in a special and convenient way to validate opposing hypotheses.
Jim Rose, ask yourself why do corporations go for growth and who benefits and you might learn something.
“why do mining executives care about the impact of this new tax on share prices? Why do they care about the new tax at all?”
Amazing naivety.
What does anyone care about the size of treasure they are intent on pillaging? Simply because the larger the size of the treasure the more to pillage. The mining executives can’t get their hands on money that has gone to government. There is a difference between concern and feigning concern.