Economic policy

Resource rent tax statement

John Quiggin336 Comments

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.

336 thoughts on “Resource rent tax statement”

  1. You prefer your own form – bs economics. Doesn’t require so much knowledge or skill. Just a capacity for defecating at both ends.

  2. The resource tax is not imposed on miners or anyone, any more than putting a lock on the storeroom of your shop is imposed on thieves who then have to come to the counter and purchase what they previously purloined for free.

  3. Theft, not matter how long standing or habitual, does not confer entitlement.

  4. Freelander,

    Juvenile oppositionist behaviour is unbecoming of you.

    A reply to post #47 of page 4 on the strength and breath of contemporary Australian racism would be most appreciated.

  6. Freelander,

    I have come to the conclusion that Jim Rose doesn’t know the heading of the thread and he/ she is unable to find the heading of the thread.

    Andrew,

    Today I heard an ad on the radio from the mineral sector. As long as they publish these threatening ads, I have no incentive to think aloud on possible solutions. Fair enough?

  7. Jason,

    Thanks for the pointer.

    Fane’s suggestion of auctioning mining leases to get the money up front for the Future Fund does not work for the reason set out in a posting on another blog by Winton Bates.

    Time inconsistency: governments renege on their promises after everyone has invested and contracted on the basis of them.

    The suggestions of Fane to issue the credits as government bonds and facilitating secondary markets in the tax credits promote the rule of law by making it more difficult from governments to break their word. Who could be against the rule of law? The rents are still harvested and there is more investor certainty.

  8. @Jim Rose
    Jim – it would help if you stick to the topic. You are way off. Its the rent resource tax not racism.

    If as Ernestine says, the mining industry is running threatening ads, I would suggest this is going to backfire very badly on them.

  9. Ernestine,
    I am not in Australia at the moment, so I am unaware of the content of any advertisements. I would have hoped, though, that you could not be swayed either way by an advertisement.
    .
    Jim,
    After long experience I have come to the conclusion that this is all you are likely to get from Freelander. I sometimes respond to him when it is particularly silly, but ignoring him seems to be the best strategy. There are others here (like Ernestine) who do regularly put together good and interesting arguments. Even when I disagree, the intellectual challenge is a good thing.
    .
    Jason,
    I agree that, under the present arrangements, the promises from government are not likely to hold much water. I am interested, though, in possible solutions to this problem as, in principle at least, I do not see this as a bad method of taxation. If it replaced the royalties and was (relatively) revenue neutral I think it would be one of those rare things – a tax that is better than the one it replaces.

  10. @Freelander
    Now that I know the mining industry has pulled out the big bully style media ad campaign – then the Government should tax Mining firms until they are bleeding and black and blue and begging for mercy Freelander.

    It would serve the Mining firms right for funding the likes of IPA and CIS and the AGW delusionist movement for years now. Its time their directors and CEOs were well and truly pulled down a peg or two from their overly self important and self appointed politically meddling perches.

  11. Alice,
    If the mining industry ads are going to backfire very badly on them, as you say, why is the Rudd government running counter-ads?

    If you are correct, this runs the risk for Rudd and co of over-reaching their mark and committing their reserves too early into the battle? Strategic objectives must be secured for an economy of effort to conserve resources in reserve for the unexpected, to reinforce weak areas and later to press home the advantage to final victory!

  12. @Jim Rose
    I dont agree with Rudd running counter ads Jim Rose. It made me sick when Howard ran all those ads over Iraq and the interest rate election. It makes me sick that Abbott is running ads that support the miners. It makes me sick that its all politically driven.
    The most honest man in politics is Bob Brown who reminded Rudd not to resort to the use of taxpayers funds for politically driven ad campaigns. Rudd is getting bad advice on this one.

    Just tax the mining companies and ignore them. Let the funds management industry counter ad if they want to.They will. They not only need a law banning governments from advertising – there also needs to be a law banning the opposition from using national media to advertise.

    Its gone beyond a joke the media blitzes and the political spin driven relentlessly into to the loungerooms of households at their expense. It does not look good, ever. An address to the nation which includes highlighting the unfair bullying tactics of the mining industry is far more appropriate under the circumstances.
    Rudd should just get on with legislating and do it quickly and dont back down. I think the great majority are already on Rudds side on this and Abbott is just reinforcing “the friends of big business” reputation of federal liberal. Rudd would be better off letting Abbott commit suicide.

  13. We agree – Bob Brown is the most honest man in politics.

    I do not agree with his politics, but no matter. Had the chance to watch Brown up close and under pressure in the 1970s and 1980s. A great man.

    Does Rudd have the numbers on the Senate to legislate?

    A Rudd address to the nation on the tax!? That would sink it forever given his credibility gap.

  14. @Ernestine Gross

    I agree with your sentiment, re: the mining funded ads. They are undertaking a direct attack on democracy trying to take Australia down the US style dollar democracy road where the lobbyists buy the policies they desire and the people only get a voice when things go tragically wrong, like in the GFC or when unfettered business activity results in something like the oil now washing up on US shores. Even business needs to be protected from business as the victims of that oil must now recognise.

    Hence, given the mining lobby’s actions, my position is: let’s see their eyes bleed.

    The nonsense also being talked about retrospectivity, and sovereign risk – neither apply in this case. Also, sovereign risk is almost always vastly exaggerated even when it exists. The evidence is that there is not often a large premium for sovereign risk and what premium there maybe evaporates quickly with a change of government, or even simply a change of government policy.

  15. @Jim Rose
    Oh no – it wouldnt sink Rudd – an address to the nation – but iot might sink his political advisers who advised him to go with an ad campaign. Well and good.

  16. @Freelander

    Fully concur on your point regarding retrospectivity. Since nothing happens until 2012 (year) and we are now in 2010 (year) there is obviously nothing retrospective.

    Sovereign risk: “The risk that a foreign central bank will alter its foreign-exchange regulations thereby significantly reducing or completely nulling the value of foreign-exchange contracts.”

    I fully concur on your point regardig sovereign risk. Whoever peddles the sovereign risk red herring hasn’t got a clue as to what they are talking about. This is common knowledge:

    http://www.theaustralian.com.au/business/miners-go-over-the-top-on-sovereign-risk/story-e6frg8zx-1225872750820

  17. Update, Update, Update, taxpayer funded campaign to sell the mining tax is being unfairly undermined by the Mineral council & rabble within the Shadow Cabinet. According to the latest reports, “On 20 April 2010, the Strategic Priorities and Budget Committee approved an allocation to Treasury of $38.5 million…for an advertising campaign to ensure community awareness and understanding of the Government’s planned tax package’. That is correct 20 April 2010 & no law was broken.

  18. Update, Update, Update, taxpayer funded campaign to sell the mining tax is in clear breach of an “absolute and 100% guarantee” that “every television campaign is submitted for approval before that television campaign is implemented”.
    Makes me feel all warm and fuzzy that no law was broken. Rudd just used an “out” he created in his own law to break his word yet again.

  21. MoSH,
    You would have to be wilfully blind to fail to see that Rudd has broken his “absolute and 100% guarantee” on this.
    Go ahead – has he broken his “absolute and 100% guarantee” on this? Yes or no?

  23. @Michael of Summer Hill
    Moshie – thats pathetic – you go in to bat for Labor no matter what they do (inlcuding this “ad campaign” on an RRT they dont really need at all and which tax payers pay for. Do you realise Moshie – the ad campaign makes Rudd look weak?? It makes him look like he needs to run an expensive ad campaign to raise a tax here and there?

    Not exactly what voters want from government. They want people who can make the hard calls and not back down.

    Is the government that weak they need to “sell” this tax first using our taxes to do so. No no no. This is not how government should be…undignified, scrapping around TV ads and media advisers, begging us to believe them.

    No – not a good look at all – a weak, hobbled, bullied by miners look. If I was Rudd Id sack the advisers now. Imbeciles.

    Come on Moshie…grow a critical mindset…not an Erskinville local branch member’s keen but unquestioning mindset. If you cant criticise your own party when they stuff up (and Im no fan of Abbotts because he is far far far worse) you do your party no real favours at all Mosh.

    Be prepared to stand up and say so when your party messes up. Rudd labor has with the ad campaign. Stop saying it is legal. It may be but too bad – most taxpayers know we are paying for the soundbites. Its ridiculous. Labor should just govern and do it and leave advertising to the commercial world. The ordinary person is ad saturated anyway (just tired of ads -so Govt needs to rise above and in so doing “differentiate” themselves from the powerful but ultimately just a powerful private commercial rabble. The world is full of commercial noise now. The Mining firms ads will be dwarfed by the banks advertising for loans or Nescafe or Mazda or Fosters anyway).

    And did you know Australia has the highest ad content at 18 minutes per hour anyway of all. Prime time TV sees 18 mins an hour and also we see lots of “public service announcements” which are anything but. Intrusive and likely to raise annoyance levels.

    Do the idiots in political power actually get that they are bothering us with ads and turning people off? ( I maintain they cant see themselves from within as the elctorate does – a study would be good). Thats why Rudds advisers on this mining tax should be sacked.

  24. Alice, the ad is all above board. Try a little harder. Have to go.

  26. @Freelander

    retrospectivity is hilarious – it’s like someone crying unfair coz when they first started renting in 1960 it was only 6 quid and now you want $600!

    but as every marketeer knows – you only have to keep repeating the message to sway people at the margins – even if those people don’t believe the message.

  27. @Alice “did you know Australia has the highest ad content at 18 minutes per hour anyway”
    yep we never even got to see a complete episode of the Simpson’s – even after all those repeats

  28. MoSH,
    Howard broke no law either. I take it then that you were absolutely happy about the WorkChoices ads. lol.
    Perhaps you should try a little harder. Rudd broke his word. Deal with it.
    .
    Alice,
    I criticised Howard plenty here – when I thought he was wrong. Rudd is just wrong (IMHO) more often. You should know me well enough by now that I am at least honest, even if you disagree with me.

  30. @Andrew Reynolds
    Not happy with workchoices ads by Howard. Not happy with anti workchoices ads by unions. Not happy with interest rate election ads by Howard. Not happy with Mining firms ads anti RRT. Not happy with Rudd ads pro RRT. Not happy with political ads. Not happy with number of car ads or coffee ads or bank ads. Why would I be happy with union ads, teacher federation ads, Coalition ads, labor ads.

    Heard about saturation Andy. What dont you understand about it?

    Intrusion. Too many ads without politics throwing itself at the feet of commercialism.

  31. @Alice

    The discussion of racism arose from the reaction of Michael of Summer Hill to my remarks about how the Left has for a long time pandered to the economic nationalism and the racism of the working class. The Left and the unions seemed to be doing so out of conviction rather than opportunism too back then, I might add now. The resource rent tax is another example of the Left whipping up economic nationalism to short-cut public debate.

    Michael of Summer Hill attributed inter-war racism instead to the upper crust. Freelander joined in this denial of basic Australian history. Both seemed to be less than fully aware of who supported the White Australia Policy and who might have gained from it.

    In the course of the same, Freelander seemed to show a lack of awareness of contemporary Australian racists such as Hanson and One Nation and the political manipulation of the boat people.

    Both eventually took their bat and ball and went home.

  32. I might “ad”

    Australia is also one of the few countries in the world where advertisements may appear prior to, and over the top of, the closing credits of a program, Now I know you wont like this at all but even NZ is more “ad” civilised at 15 mins per hour and as well they ban TV ads on Christmas Day, Good Friday, Easter Sunday, and also on Sunday mornings before midday.

    Imagine that – Australia not only one of the biggest privatising nations but also a nation that runs TV ads more than most other nations – now even the governments want to run ads on every sticky issue.

    Save us from the madness! Then there is Denmark – no ads. Russia – dropping ads because of a ratings drop (wonder why) – Ireland – 10 mins of ads per hour, France 9 mins per hour and can only have two breaks an hour if the show is longer than two hours, but one if its shorter than an hour.

    So…has anyone tried watching Underbelly lately? A one hour show turned into two hours by ads. So why will I be watching either the Mining co ads or the Govts ads on RRT?? Some of us actually have a life away from ads.

  35. Andrew Reynolds & Alice, for once in your life think outside the square and forget about the claptrap being bandied around. Think who actually benefits from the new Resources Rent Tax. I surely want my fair share of the spoils. Don’t you?

  36. Freelander, forget about the drip for he has no idea who or what the Protectionist Party stood for in Australia.

  37. @Alice

    I agree with you that the right ‘lost the last election precisely because of Howard’s workchoices’.

    When Howard won the Senate in 2004, I thought he would overstep himself.

    A separation of powers and an upper house elected through proportional representation to temper the temporary and standing passions of the passing majority are very important.

    Latham was not much truck as an opposition leader in 2004. The hero worship Latham got from the press gallery in Canberra did not help him win votes at all. Lost votes instead.

    There is a galactic difference between having the killer instinct needed to be a PM and coming over as a foul-mouthed school-yard bully, which Latham finally did.

  39. MOSH …

    I’m not sure whether I am getting “my fair share” of the mining price boom, but however short I am, I’m less troubled by that than the conviction that those considerably worse off than I am (that would be the bulk of the planet) are being seriously short changed n matters of vital importance.

  40. @Jim Rose
    Jim Rose
    Tonight on Q and A I finally saw a liberal liberal that I admired for having the honesty to say that the liberals have moved to far to the right and that they are losing the votes of progressive young people because they cant identify with a party that shows no compassion. Mitch Grady also commented that Malcolm Fraser did not abandon the liberals, the liberals abandoned him.
    The liberals have abandoned also the great majority of ordinary Australians generally who can no longer identify with the combative hard line approach.
    The PM does not need to have or demonstrate a “killer instinct” Jim Rose. That is your party’s mistake.

  41. Fran Barlow, you do make a lot of sense but in relation to the Resources Rent Tax the Federal Government is doing the hard yards in providing workers with greater security upon retirement. Furthermore, I see nothing wrong with the proposition of taxing those who can afford it.

  42. Norway apparently taxes their petroleum industry 78%. They have free healthcare, good public education and generous retirement benefits for their citizens.
    Yes the mining firms should share more of the profit Moshie.

  44. @Alice

    As I recall, Norway’s oil wealth boost its GDP per capita by 10 per cent relative to the OECD average. Australia gets a boost of 2 per cent or so. Natural resource wealth – first timber, then hydropower, now oil and natural gas – transformed Norway in one short century from a destitute place to one of the most affluent countries of the world.

    Norway’s prosperity is founded in the lessons of constitutional political economy.

    Having learnt the hard way in the 1970s to use a relatively small portion of the total to meet current fiscal needs, most oil revenue is set aside in the state petroleum fund, recently renamed the pension fund to reflect its intended use. The Norwegian Government’s pension fund, the world’s second-biggest investment pool, will be worth US$410 billion by the end of the decade. Their population is 4.8 million.

    The main political parties have, from the beginning, shared an understanding that the national economy needed to be shielded from an excessive influx of oil money to avoid overheating and waste.

    The high rates of oil rent taxation in Norway is worth exploring more.

  45. Alice,
    I showed a while ago how silly Norway is as an example. Perhaps you should review the evidence.
    .
    MoSH,
    Yes or no? Did Rudd break his word or not?
    Are you going to do a Freelander and say everything you can think of short of admitting the obvious?
    You are being hilarious on this one.

  47. Andrew Reynolds, the only issue at stake is whether or not laws have been broken. In respect to Norway I have no idea what you have written but last year the Government Pension Fund had a record return of 25.6% equivalent to 613 billion kroner. Try a little harder.

  49. Of course, MoSH. Everything is OK, as long as no laws are broken. Great standards you are applying there.
    Now, did he, or did he not, break his word?

  50. Andrew Reynolds, unless you or anyone else have evidence to the contrary my understanding is that Rudd has not breached any law. Try a little harder.

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