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 
Economists know that mining executives, like other executives are motivated not be what is best for the shareholders, but rather by what is best for themselves. The owners are well and truly separated because most of the ‘owners’ of shares are not owners. They are simply other executives acting not for those whose money they manage but simply for themselves.
Naughty Freelander, let Jim Rose think for himself about growth versus dividends and Resources Rent Tax.
@Jim Rose
Jim Rose
you say
“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.”
Are you threatening me? Here in JQs blog? Thats a very poor defence, but not out of character, for your arguments which are obviously weak. Ill refer to it for what it is – an attempt to intimidate. Then to somehow follow the comment above with a comment on “gay bashing” – well that is simply inexplicable.
The separation of ownership and control also swings through its own cycles. At the turn of the century in the US and Canada and no doubt here also, many large entities were tightly controlled by family structures which was reduced by the mid century. Take the Rockefellers for example. However it is noted by some academics that since the 1970s – about the same time as neoliberalism set off on its fateful and dismal path – that family structures and structures of associates have again re-emerged as the controllers of large corporations. Why is it that we commonly see individuials with multiple board positions Jim Rose? I would suggest this is also not uncommon in large Mining companies.
You neglected entirely to mention the problems of moral hazard and adverse selection, losses from the misallocation of CEO talent, failures in monitoring, the rise of incentives for CEOs who can affect the volatility of the share price, and the increasing trends to incentivise risky behaviour by”fly in fly out” CEOs rather than good governance.
From your above post you have noted that
“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.”
This tax will not affect Mining companies share prices to the extent of “a large capital loss”. Any tax effects will already be in the share price right now – have they collapsed Jimbo? No – the share prices have not collapsed and nor will the mining companies and nor will they reduce their investments in Australia – in fact they have just made a major investment to the tune of 4.5 billion bidding for the coal rail network from the Bligh Government (who will of course bend over backwards to make sure they sell it).
The whole argument is a red herring Jimbo. The GFC and the Greek crisis had an effect on the share prices to a much greater extent than any RRT would impose. The shareholders simply had to deal with that and they have. What is far more dangerous to shareholders who invest in mining shares is things like “dubious” announcements of discoveries (speculative rallies – Poseidon style minerals booms that dont last) from mining CEOs themselves – and the share price volatility which arises directly from these CEO conflagrations and rumours.
It has ever been thus, and the RRT effect is miniscule in comparison.
Just in case you dont remember – there was a time in Australia’s history when mining was for gamblers and pastoral activities were the aristocracy of Australian production.
Well pastoral activities are no longer the aristocracy but Mining is still for gamblers. Yet the Mining firms are now trying to convince the rest of us that they are the aristocracy of Australian production.
They were not then and they still are not now.
I would also like to suggest that if the Mining firms get “too noisy” the super funds industry is likely to bring them to heel – for the latter will also be amongst the beneficiaries from this tax.
In fact the super industry is already telling the Miners to tone it down
http://www.abc.net.au/news/stories/2010/05/27/2910995.htm
Now which industry are you backing Jim?? Mining or Superfunds? Or are your pro business arguments only for one business? Maybe you have friends in high places in Mining is my suggestion and if you are not careful you may wake up to find a funds manager knocking on your door to take you away.
Michael of Summer Hill and Freelander,
It is good to see that we all agree that it is in the self-interest of top executives that their companies grow, and that the larger is the size of their corporate treasuries, the more there is for them to pillage. My points precisely!
I will leave it to you two and Alice to document the tiny percentage of all the billions in corporate treasure that is foregone as executive compensation in mining companies. Executive pay will be public record in their annual reports – the media uses these as their source when reporting those scandalous corporate pay packages and rich 100s.
Most of the mining profits go offshore, as you lot and Rudd repeatedly have claimed over and over to stir up chauvinism. The local mining executives and the executives that run their Australian equity partners therefore must be truly inept at looting these billions. A few million here, and a few million there each per year – this is barely sundry expenses for the massive financial scale of mining projects.
You appear to accept, perhaps inadvertently, that performance-based executive compensation is enough alone to motivate managers to act in the owners’ interest.
For instance, giving stock options to managers that are spread over time instead of cash bonuses so that sustained growth in share value is in their long-run self-interest too. There are many other corporate governance and market-based disciplines on the leaders of managerial firms, but these are for another time. You fell at the first fence.
Alice,
you obviously do not know the old German joke about when they came for the communists, I didn’t speak up because I wasn’t a communist; when they came for the Jews, I didn’t speak up because I wasn’t a Jew; when they came for the trade unionists, I didn’t speak up because I wasn’t a trade unionists; and when they came for me, there was no one left to speak up for me.
When Howard did come for the trade unionists, reason enough alone to oppose Work Choices is it is 800 pages of federal regulation displacing state laws more in tune to local needs and electoral wishes and that it is abolished the common law of employment relations such as unfair dismissal and the implied contractual duties of mutual trust and confidence, and fair dealing.
Work Choice’s 600 pages of prohibitions included outlawing agreements of employers and employees to freely put in place unfair dismissal provisions. Long-term contracts and various other contractual clauses and implicit understandings arise to protect investments in specific human capital and other specialised assets, resolve grievances and police hard to detect individual managerial abuse within large organisations.
Honest arguments for keeping common law protections and upholding federalism are unavailable to you on the Left because of a long history of deriding the same.
Jim Rose, you claim that there are individuals on this blog stirring ‘up chauvinism’ when in fact much of the misinformation about the Resources Rent Tax is coming from chauvanists who don’t want to share the spoils. Try a little harder next time.
Michael of Summer Hill,
Chauvinism was originally an exaggerated, bellicose patriotism and a blind belief in national superiority and glory. It has come to include an extreme and unreasoning partisanship on behalf of any group to which one belongs.
I am happy to amend to economic nationalism.
Economic nationalism is a dangerous well for the Left to tap.
It is just as available, once stirred, to right-wing popularists to use for their own retrograde agendas. Economic nationalism is the happy hunting ground of everyone from the Greens to One Nation.
Many of the Left in the inter-war years found that the quickest way to win over the working class and the lower-middle classes was to tap into their rich well of nationalism, xenophobia and racism. That was how many on the Left became fascists! They found they could win power through the ballot box by combine nationalism with anti-capitalism.
Economic nationalism is a heady wine indeed.
Jim Rose, during the inter-war it was the conservative upper crust from politicians to judges that pursed eugenic racist ideas in this country. No more bulldust please.
@Jim Rose
Jim – if you want to bounce the “left” v “right” ball around and in case you didnt notice (like Rumpelstiltskin you appear to have been asleep for some years…)
The “right” lost the last election precisely because of Howards workchoices. It was the right that was derided by the majority vote in Australia Jim Rose. It is the right that is being laughed at now. Some try to cushion the blow by blaming it the “extreme right.”
I am not “left” Jim Rose and I was never “communist” but you can label me left if it helps you feel better over the unpopular directions the conservatives have taken in this country and others over the past three decades (and I might add directions and ideologies also followed by some Labor governments). Landslide unpopular….such that Howard lost his own seat.
The “left” “right” argument is simplistic, like you.
Alice, contrary to Jim Rose’s assertion that the words he recites are a ‘old German joke’, they are actually famous words attributed to Pastor Niemoeller
http://en.wikipedia.org/wiki/First_they_came…
Alice,
You cannot have it both ways.
• You assert that “Any tax effects will already be in the share price right now”.
• You also assert that “nor will [mining companies] reduce their investments in Australia”.
Share prices fall because the estimated net cash flows of the company are forecast to be smaller. If net cash flows are smaller, that company will pay less in dividends, and investors will supply it will less capital because better paying options are elsewhere.
The mining company will have less capital to go forward with projects, and will not be able to undertake some projects because the returns forecasted by the share market investors is insufficient to induce the supply of capital.
The absence of resource rent taxes causes races for rents. There is premature exploration and premature depletion to beat others to the pool of rents and to pre-empt taxes. The introduction of the resource rent taxes curbs these races for rents. There will be less investment wasted in this outlet for rent seeking.
The ups and downs of oil prices in the 1960s and 1970s are an example. Foreign oil companies were depleting middle-east oil fields as fast as they could because they anticipated nationalisation. Once nationalised, the property rights structures changed as did investment horizons. Middle-eastern oil was depleted as a slower rate and exploration was less urgent. This race for rents kept oil prices down in the 1960s, and helped boost oil prices in the 1970s once it ended.
The public discourse seems to focus on ‘the mining industry’ vs ‘the government’. But this ignores many aspects of what MBA students study under the heading ‘strategic management’. In this framework, governments are only one player. To provide an example of what I have in mind, the following link may be helpful.
http://business.timesonline.co.uk/tol/business/movers_and_shakers/article3260874.ece
It would seem to me Marius Kloppers is lucky to have lost in his take-over play regarding Rio because, had his ambitions been satisfied, the company, formerly known as the Big Australian, might have a mountain of debt now and they would have to go cap in hand to the Government, just like small players who happen to have developed mining projects relying heavily on project finance.
Michael of Summer Hill.
So, if racist ideas were the preserve of inter-war conservative upper crust, were the ALP and unions always opposed to the white Australian policy? T
The call in the 1901 Labor’s platform for a White Australia policy is just a recent fabrication?
Arthur Calwell led some party other than the ALP?!
John Curtin did not say that “This country shall remain forever the home of the descendants of those people who came here in peace in order to establish in the South Seas an outpost of the British race
see http://www.immi.gov.au/media/fact-sheets/08abolition.htm for Fact Sheet 8 – Abolition of the ‘White Australia’ Policy.
I gather Jimbo that you don’t agree with the proposition that “more regulation is often a sign of progress”?
Jim Rose, during the inter-war years eugenic racism was an endemic disease amongst the upper crust fraternity who wanted to maintain their so-called status and superiority by pursuing immigration policies based on a White Australia favoring so-called Teutonic and Scandinavian superior stock. And no bull the upper crust even wanted to have British born and aliens ‘deported’ and/or ‘sterilized’ if found deficient. In short the White Australia Policy was instrumental in maintaining the upper crust’s way of life. Thank god sanity prevailed and the White Australia Policy is now history.
Michael of Summer Hill,
I have argued previously that progressive political parties, unions and intellectuals are junior partners in corporate capitalism. The ALP and the unions might have been just duped into voting again and again, election and election, from 1901 onwards for the White Australia policy? Calwell and Curtain just misspoke, as they say these days?!
Progressive politics was infested with the most repugnant strains of racism. The past support of the ALP, and in the USA, the Democratic Party, for vicious, state-sponsored racism is well known.
In days gone by, budding progressives not only revelled in exposes of capitalistic barons and attacks on laissez-faire economics by muckraking journalists, they also poured over racist tracts that drew on the latest anthropology, biology, psychology, sociology, eugenics, and medical science. Progressives supported eugenics until Hitler’s embrace of it gave it a bad name.
The overtly self-proclaimed socialist parties were no better, arguing that solidarity of the working class did not extend to black people. Apartheid was found in the 1920s after a general strike by white unions led by English socialist émigrés.
Progressives sought vast new authority for governments to manage all walks of life while at the same time weakening traditional checks on government power, including property rights and liberty of contract. This is a mixture ripe for the racist abuse that did occur time and time again. To succeed, racism requires government backing.
Employee and customer discrimination can result in segregation.
Employer discrimination requires the capitalists to substitute profit for some other objective. Employer discrimination will be less pervasive in more competitive industries because the robber barons have a nasty habit of wanting to hire the cheapest labour.
If an employer refuses to hire a productive worker simply because of skin colour, that employer loses out on a valuable opportunity. Discrimination is costly to the employer who discriminates.
There is a long history of resistance of business groups to racism because it costs them profits and denied them access to cheaper labour. Why would the bosses want to suppress competition in the labour market? How would they gain from strengthening the hand of unions?
Unions supported racial discrimination and lobbied for Asian exclusion laws right from the start. An early example is from 1874. The U.S. Cigarmakers Union was the first to persuade manufacturers to put a union label on cigar boxes. This was to differentiate the product from those made by non-union Chinese immigrant labour!
Interesting to see that Jimbo, by his silence, agrees with the proposition “more regulation is often a sign of progress”. Naturally, only a fool could disagree.
That is one pretty thick hymn book Jimbo is singing from! Pity the tunes are not more melodious.
Cigars in the 19th century to demonstrate that in the 19th century some union members were racist as were pretty well everyone in that century, and to thereby, throw mud on unionist today.
Talk about a long bow. I love it! Have you got any more?
Now that is what I call amusing! This blog is lucky to have you, jimbo. Even if you are not lucky enough to be living in the lucky country. The country lucky enough to have avoided the GFC with a timely stimulus.
Jim Rose, I will not respond to your comments anymore. You state that ‘If an employer refuses to hire a productive worker simply because of skin colour, that employer loses out on a valuable opportunity. Discrimination is costly to the employer who discriminates’. Bloody racist.
Wait.
The ‘seal’ only showed the cigars produced with union labour. It didn’t demonstrate any racism in itself. Nor racism by any unionist even if the industry’s intention was anti-chinese. The racism is simply a most questionable inference.
The long bow is even longer! How inventive!
@Michael of Summer Hill
Yes. It is only bad business not to purchase slaves if they are on offer at a reasonable price. Or to send children down mines if they are willing to do it (or their parents willing to send them forth) and a fair profit is possible (without labour laws and health and safety and other impediments to trade).
Alice can have it both ways. The expectation of getting money they ought not to get would have been factored into their share prices and finding they would not get that money because of the tax would now be factored out.
This would have no influence on investment, except maybe the wasteful investment they put into rent seeking which is not the type of investment we want anyway. As if anything the tax will increase investment, so it will have no detrimental impact on investment. Most economists would know this.
We don’t want the wasteful investment they are currently making in their silly rent seeking advertisements.
Alice,
we agree that you are not of the Left.
You do appear to have the following attributes:
• Anti-capitalist
• Economic nationalist and a bit of a conspiracy buff
• Certainty suspicion of foreigners – and especially those fool enough to have money to invest in Australia
• Blasé about the rule of law and the separation of powers
• Keen on unfetter power for governments
• Want to use government to punish and impoverish those you dislike – and you have a long enemies list
• See the solution to most any problem is working out what to fear and who to blame.
The kindest label that your mishmash of hates and fears would earn is Pauline Hanson would welcome you as a home buyer.
@Jim Rose
And none of your perceptions true Jim Rose (not one). Welcome to common sense that realises that we cant go forever on the “lower my taxes” road (both corporations and individuals).
Maybe you would like to go and live in Greece right now Jim. It might suit you better.
This blog is lucky to have Jimbo as a source of amusement.
I wish he would come clean about who is funding him and how I can access some of those funds! “Porkies for proft” I could tell some good ones if the price is right.
The oil currently washing on to US shores is another example of the no, low regulation folly.
Regulation, good regulation is an important driver of human progress. What neo-luddite anti-regulation unfettered free market advocates don’t understand, is that without regulation much of the advance of the last two hundred years would not have taken place.
JR @ 25,
Nice cut and paste form the constitution of the Greens.
from the constitution of the Greens.
@Freelander
Yes Freelander – its a bigger mess than Exxon Valdez but hey – BP are still working on plugging the leak. Something tells me they wont get this leak fixed any time soon and are busy running through the cheapest fixes first.
Tony G – go away.
And Jim Rose trips up on his own arguments
he says
“Share prices fall because the estimated net cash flows of the company are forecast to be smaller.”
Hang on a minute – share prices go up and down on a given day because of a myriad of nonsense “announcements” and nonsense “deals falling through” because people like Twiggy lie and make garbage press releases…..
So your tax effects are already in the share price Jimbo and did the shares crash? – nope. You do believe that the share price on a given day reflects all available information dont you? (you would beleive in the efficiency of markets in this regard wouldnt you Jim? I dont think markets on their own are necessarily efficient. They get sucked in by charlatans all the time – but well Im sure you think more highly of market efficiency and so called market information than I do. I rather think share market movements owe more to dumb stampeding beasts than the super prescience ascribed by market worshippers like yourself.
Announcements is all it takes and the announcement has been made and Mining shares have fallen barely a whisker (much less than the effects of the far more serious winds and gales blowing because of the GFC). The tax is a wimper and long overdue. The Miners are wasting shareholders funds objecting.
Michael of Summer Hill,
You tried to argue that for first half of the 20th century, and perhaps a little beyond, progressive parties and unions were not in fact racists. The racists, you claim perhaps out of over-enthusiasm, were instead the upper-crust of society.
The ALP and unions supported the White Australia Policy for 65 years. Simple as that! Are you instead suggesting that this is an historical inaccuracy and that all the newspapers, books, films, Hansards and other records were later falsified?
Too many historians mostly ignore or whitewash the leading role of racism in spawning and uniting the Labour movement. They are even more pitiful at explaining who gained from the White Australia policy and how these gains reinforced and germinated what seeds of racism that was already there in the working class.
I also pointed out that racism is costly for capitalists so they would gain from lobbying against it. The hiring of minority workers by less prejudiced employers will slowly bid up their wages to that of comparable majority group workers.
How would the capitalists profit from a White Australia Policy? How would the unions and employers both gain for this vile policy.
Employers ‘gained’ because they didn’t like those people and they didn’t want them in the country. This is the essence of racism. Not wanting people competing your wages down is a different motivation to racism.
What did Nazis have to gain from driving someone like Einstein out? Nothing, except it fitted in with their peculiar utopian vision.
Freelander,
How welcoming were 19th century and first half of the 20th century unions to Asian and black applicants for membership? The support of the ALP and unions for the White Australia policy does not bode well for your search for exculpatory evidence.
Despite considerable recent rhetoric to the contrary, unions blocked the economic advance of blacks, women and other minorities. This is because once a union has raised wages above competitive levels, it must ration the fewer jobs that remain. A low cost way of doing so is on the basis of sex, family relationships or race. The union must also look for ways to suppress competition from non-union workers, new entrants and imports.
Because craft unions have had more monopoly control over wage rates and hiring practices than industrial unions, craft unions have had more opportunities to exclude minority workers. Industrial unions have had to organise whoever was hired, and industrial companies have hired large numbers of women and minority workers.
I imagine they were as welcoming as everyone else so why are you singling them out? The low skill unions are not worth worrying about, unless you are one of the many who regret the passing of slavery and child labour.
For some reason you seem intent on bashing the poor. The real question should be why bother? I cannot think you are so stupid that you are saying what you are saying for free, so how about referring us on to your employer.
As far as craft unions go, how about you talking about the really successful craft unions, doctors, lawyers and pharmacy? Why not give them a burst? They are the ones that have really jacked up their members wages.
Freelander,
Good to see we agree that employers do not profit from racism. Owners must be willing to pay an economic price for their bigotry.
If an employer choose to pay more in wages to hire from a smaller pool of majority group workers, their high costs put them at a competitive disadvantage to less prejudice employers. This will slowly drive the more prejudiced employers out of business and bid up the wages of minorities.
You say that you ‘imagine they [unions] were as welcoming as everyone else’.
Good to see we agree that unions were racist in the 19th and much of the 20th century. Unions were a creature of the racist majority of the society around them.
The degree of discrimination by union officials depends on their ability and willingness to exclude. Union leaders cannot stray far from the median union member’s preferences. Many unions had hard left leaderships back then too. This did not seem to help mitigate support for racism and the White Australia policy at all.
Nothwithstanding the volumes written on topics of interest to Jim Rose, no argument has been forthcoming against the resource super profit tax, the topic of this thread.
@Jim Rose
I didn’t say employers don’t profit from racism. I simply recognise that the primary motivation behind racism is not simply profit. Too often they are just another set of nutters with some utopian vision, not too unlike the free market utopians.
I note your avoidance of putting the boot into the doctor, lawyer etc. craft unions. You are very selective in your targets.
And Ernestine is correct, so good nite.
Freelander,
If you somehow think that the White Australia Policy was an invention of the Right, I would strongly encourage you to read David Day’s excellent biography of Andrew Fisher (ISBN: 0732276101). It was written by a biographer that was sympathetic to Fisher and who obviously feels pained that he was one of the primary movers of it. I would advise you that it is not worth arguing about as the history is clear.
.
Ernestine,
I have been giving some thought to your idea of using preference shares. I would suggest that convertible redeemable preference shares (let’s call them prefs for short) would probably be about right for this purpose, if the preferential cash flows were secured against the government refund. The only problem I can see with this is that the purchasers of the prefs would be taking on some real risk that, in the event of a widespread downturn in the mining industry, the government might change the legislation again to reduce or delay the payout under the 40% obligation. If, say, China descended into a full blown revolution or just a big downturn (as I would regard as a reasonable possibility, given its history of such things) then commodity prices would drop severely, resulting in widespread problems in the industry.
Situations such as that at Ravensthorpe would become the rule, not the exception.
In this event there would be a huge bill to the government as mining projects closed. For example, if the Gorgon project (cost of about $30bn) were to be closed then the bill could be in the order of $12bn – and that is just one project. If many projects closed then the bill would be several times greater.
I would see the political agitation from a bill of this size as being something that a government would find very hard to ignore – and, given their history in this, something they would be likely to pay attention to.
I am not sure that investors would feel entirely as if these were effectively government guaranteed if the “guarantee” was similar in nature to the Keating “LAW” tax legislation.
Alice,
Re post #39, BP is responsible to pay 100% of the cost of the clean-up.
More to the point, there is a tort liability cap on economic damages of US$ 75 million.
If anyone suffers a loss of income or property as a result of the current spill, BP is only obligated to pay a paltry $75 million in all even though the total losses may be in the billions. See http://www.nytimes.com/2010/05/02/us/02liability.html
This regulatory privilege from Congress gives oil companies the incentive at the margin to tolerate more risk of a spill and to reduce their expenditures on prevention measures, at least at the margin. They also have an incentive to drill to deeper levels because their liability if things do go wrong is capped at the same level.
Regulators and the industries they oversee routinely develop mutually beneficial relationships that should horrify those who idealise regulators as watchdogs.
It is no surprise, given these regulatory privileges that BP’s chief executive has admitted to the Wall Street Journal that it did not have the technology available to stop the leak, and in hindsight it was probably true that BP should have done more to prepare for an emergency of this kind.
As posted before, I support unfettered common law rights and a non-discriminatory democracy. Government regulation should be uniform across all industries. Free entry into all industries; and no occupational licensing too.
Andrew Reynolds,
Good point about biographies as source materials.
Another way if is ask why did Don Dunstan move to repeal the White Australia policy clause from the ALP platform in 1966 if it was never there in the first place?
Some on this blog might even recall watching on TV speeches and interviews where Whitlam, Hawke and others spoke with well-deserved pride of their efforts over an extended period to bring to an end union and ALP support of the White Australia policy. That alone secures them places of the highest honour in Australian political history.
@Andrew Reynolds
Hobo Two, delusional as usual I see. I never even mentioned ‘the right’ or ‘The White Australia policy’. Not so long ago racism was de rigueur, just as, for a brief time, amongst some parts of the self absorbed chattering classes, your views were. Though now, both are as dated as bell-bottom jeans.
Andrew, I also spent hours studying financial statements of a select set of mining companies. (With the mining boom ‘in place’ one does get a bit lazy.) It is an interesting topic. I could see that those who have project finance have a practical problem that is independent of attitudes or even willingness to pay more for non-renewable resources, particularly if they have a financing arrangement in place that goes beyond 2012. So, I am not surprised that the initial reaction was ‘to bark NO!!’, supported with just about any argument or threat that came to mind. I have convinced myself that the Treasury and the 20 economists have an elegant and economically meaningful approach. In my opinion, it might have helped if they would have used corporate finance terminology rather than the economic notion of ‘super normal profit’ (eg one could say a resource charge or non-renewable input cost of 40% is calculated on EBIT with royalty payments to State governments being fully credited, an allowance of the long term Aussie bond rate is made and a subsidy is being allowed under specified conditions. This makes non-renewable resource input costs a function of market variables with some risk sharing with the resource owners.) The term ‘super normal profit’ is loaded or can be loaded. I made the initial suggestion of redeemable preference shares because I had in mind project financing with a finite life. When it comes to actual financial restructuring one would need to have access to the existing financial contracts and evaluate possibilities within a generally unstable financial market. I wouldn’t be surprised if in some cases convertibles would be more suitable, for both the issuer and the buyer. The instability of the global financial system is, IMO, a much bigger problem . (It was the GFC that killed the BhPB-Rio deal and BhPB was smart enough not to go for debt – at least IMHO.) I am now confident that practical solutions can be found and I hope, both the government and the industry members will not waste much time and money on sales promotion but rather spend their time on sorting out details.
Ernestine, you might be right with your suggestion, but it sounds far too fair, and now I, like some others, would just like to see their eyes bleed.
Ernestine,
I note you do not address the issue I raised – the credibility of the government “guarantee” of the 40% repayment. Do you have a suggestion that may address this? I have seen it suggested that the government should issue debt instruments against verified project expenditure.
I reiterate, though, that I am not against this as a means of taxing the industry. I am highly concerned at the level of the tax as I believe it is likely to constitute a strong disincentive to invest in Australia, meaning that future investment is likely to occur overseas.
Do you have any thing that could address this point as well?
.
Freelander,
Just as long as we cannot add that to your list of errors.
Freelander,
I am more than happy to agree that ‘Not so long ago racism was de rigueur.’
Not mentioning the White Australia policy and the Left’s solid support for it would be cover-ups.
You say that racism is ‘dated as bell-bottom jeans.’!
If you do believe this, you have not been paying attention to world and Australian affairs.
You must have simply missed the rise of Pauline Hanson’s One Nation and the current increased use of boat people as political pawns to appeal to the red-neck vote.
How did Howard get over get over the line in the 2001 election? Border protection, perhaps?
Hawke’s dumping of aboriginal land rights because it was not a vote winner is another example.
Ernestine,
Thinking a bit further, I see no reason why the expenditure should not be either immediately, or at least annually, rebatable. The principle would be simple – spend the money, get rebated. Make the income, pay the tax.
I would still have a problem with the rate, but at least the government promise of the rebate would have real credibility. Additionally, the holder of any related prefs could get their interest back on a reliable basis.
Freelander,
I have no need to go into detail into the merits of a resource rent tax because it is the spawn of blackboard economics.
The same optimal tax theory favours broad-based consumption taxes over taxes of income from labour, and wait for it, capital income taxes and capital gains should be roughly zero!!
There is even more: a zero top marginal income tax rate!!!!!!! Mirrlees (1971), an old lefty, was horrified to find this striking and controversial result about the optimal taxation of the super-rich in his pioneering work. He must have bit his lip when he published.
If you are serious and honest about a resource rent tax, you must also champion further radical tax reforms to show you are not an Abbot or Rudd style opportunist.
Many who champion resource rent taxes do so because it is imposed on people that they do not like. The repeated references to the foreign nationality of many mine owners is not done to quell passions and promote a calm debate free of rancor, prejudice and xenophobia.
Taxation is an issue for constitutional political economy. What restraints on taxing, spending and regulation promote a non-discriminatory where all are equal under the law and the passing political majority cannot exploit the minority out of self-interest or temporary or standing passions?