Resource rent tax statement

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. @Andrew Reynolds

    Hobo Two, you have a continual demand for affirmation more outrageous than any three year old I have ever seen. Yes, whoever you are talking about broke their word. So you are right. Yes, you did show a while ago how silly whatever it was, was. So you are right, again. And yes, you are a wonderful little child. Most amazing toddler ever seen.

    Now, I think you have been over active today, and are a little cranky.

    Now, be a good little boy and go to bed. The used newspapers are in the usual place.

  2. MoSH,
    I understand that you are not answering the question. I have to assume that it is because you are simply unable (or more likely unwilling) to admit that Rudd has done anything wrong.
    I just happen to believe that we should expect more of our leaders than that they lie, cheat and steal – and, provided that they do not contravene the law (hey – they write it, so they can always insert back doors in like the one Rudd used) that we should be content.
    I was not happy when Howard did things like this. I am not happy that Rudd is doing it. You seem perfectly content that he does so. That’s fine, just do not attempt to accuse any other politician (perhaps Abbott) of ever going back on his word ever again, as we can point back to the standards that you seem to believe are acceptable – as you have argued on this thread.
    I will keep watching for those “Update, Update Update[s]”.

  3. Update, Update, Update, Mungo rips into the selfish billionaires arguing that, ‘Just about every respectable economist in the country has endorsed (the RRT) and the only real opposition has come from the financially self-interested miners themselves and from the politically-driven coalition parties. Others have suggested that the government’s proposals could be tweaked here and there, but no-one has taken seriously the predictions of ruin the multi-billionaires are promulgating in their advertisements’. Thumbs up Mungo.

  4. MoSH,
    Nonsense. Whoever Mungo is, if he said that he is simply wrong. So far many economists have come out in support of the principle of an RRT – as, I might remind you, I have as well under certain circumstances. So far, AFAIK, very few have come out in support of this RSPT – apart from Ken Henry, its author. Even our good host here, IIRC, has not explicitly endorsed this RSPT – although (as always) I can be corrected on this.
    Perhaps you (and Mungo) should read a little more widely.

  5. Michael of Summer Hill,

    Your use of the reference “respectable economists” is not helpful to calm democratic deliberations.

    Appeals to respectability and authority in ways that suit the agendas of the speaker are common tactics of partisans of all political persuasions. They do it because it works all too often.

    The reference to “respectable economists” attacks the person instead of the argument, imputes guilt or innocence by association, and is an appeal where a proposition is claimed to be true solely because many well-educated people believe it to be true.

    Knowledge grows by the truculent and rebellious minority persuading the majority that the received wisdom is full of too many puzzles and contradictions to be right.

    Partisans of the resource rent tax should be welcoming the recent mining project cancellations. Shouting from the roof-tops that the race for rents is over for now, and premature exploration and depletion may be over. The resources will stay in the ground to earn a better return later. You cannot have it both ways.

  6. @Jim Rose

    Partisans of the resource rent tax should be welcoming the recent mining project cancellations. Shouting from the roof-tops that the race for rents is over for now, and premature exploration and depletion may be over. The resources will stay in the ground to earn a better return later. You cannot have it both ways.

    It’s a bit more nuanced than that. It seems unlikely that tghere is any more to these project cancellations than political blackmail, in which the ostensible hostages are locals employed by extractive industry. Whether they get their way or not, extractive industry will in short order, mine what they fancy is profitable and demur on what is not. Nothing in the RSPT proposal will prejudice that calculus.

    If I really believed that marginal mining projects had been cancelled on this basis, I’d see that as a good thing, and yet another reason to support the tax. Actually, the prospect that it may have the opposite result — making marginal projects viable — is one of my reservations about the tax as is the probability that it won’t at all slow the extraction of ore, or contribute to a decline in Australia’s reliance on mining income.

    Personally I’d like a tax ($35 per tonne of CO2 rising to about $100 per tonne by 2020) on Australia’s exports of coal and gas a corresponding imputed tariff based on CO2 intensity on goods landing here from places using fossil fuels. We then use that money to fund (both here and in source countries of imports) less CO2-intensive production. That might produce a decline in Australian coal and gas production, and I’d be very happy with that.

    The fight over RSPT would be nothing compared to that one.

  7. Update, Update, Update, today Rudd spelled out the need for RSPT to fund important reforms. In his speech Rudd argued that “The Government took on the challenge to reform Australia’s system of resource taxation with our eyes wide open as to the complexity and scale of the task. We saw the same scare campaign the last time a 40 percent profits-based tax was introduced for offshore mining in the 1980s – although that industry went on to flourish. The mining industry said the industry would collapse after the introduction of native title. They were wrong. The mining industry said the industry would go backwards if we abolished Work Choices and AWAs. They were wrong. The fears campaigns have been many. But we have chosen to take on this battle for reform. I believe the Government will prevail in the resource super profits tax debate – because it comes down to two simple arguments:First, we should be taxing the profits not the production of our resources. Even the mining companies accept that profits taxes are better than the current state production taxes. Second, the mining companies can and should pay a fairer share now that they are earning huge boom-time profits from minerals – minerals owned by the Australian people”.

  8. @Michael of Summer Hill
    The mining exes have been using shareholders profits for years to donate and get behind every legislarion that would lower their costs (workchoices, deregulation, anti AGW prolicies and now the super profits tax).

    And they ahve that silly Bligh woman snookered in QLD who has them all chasing after her privatisation of QLD coal loading tracks and trains…wow ..so now Bligh comes out supporting the miners and Xstrata says its canning two marginal geothermal projects in QLD because of it…and Bligh is complaining because of the “lost jobs”

    But hey – its a circus of lies…because the jobs havent even started yet, no-one has been employed…so no real jobs are lost and Xstrata is still busy in a bidding war trying to buy Blighs sell off of QLD public assets. Yes of course they can afford to be part of the bidding consortium at 4.85 billion!!!

    Its not just the minerals Xstrata wants – its QLDer’s public infrastructure and Bligh is only too happy to bend over to help them. Its sickening, actually.

  9. No wonder Rudd didnt want to attend the annual “mining execs” dinner at parlaiment house with any of them.

    I wouldnt have gone either. I couldnt have stood the smell of pure greed.

  10. Alice, using Australian Treasury data, Morgan Stanley estimates that the Federal Government would have collected an additional A$35bn in revenues from mining royalties between 2000 and 2009 under the proposed RSPT tax structure compared to the current royalty system. In otherwords, Australian taxpayers have been short changed by A$35 bn. Who is kidding who?

  11. Alice, the arguments being raised by the mining sector are misleading for mining companies will still have to pay ordinary company tax and the RSPT only applies once a mine generates super profits. This raises the question as to whether the Mineral Council is being straightforward and in fact it is all about ‘ownership’ and the 40% government stake in new mining ventures rather than the super profits.

  12. Update, Update, Update, MoSH posts yet another ALP talking point.
    Oops – that’s not news.
    .
    MoSH – perhaps you can post us a link to where “Mungo” explicitly endorses this RSPT, rather than an RRT in general. We can then have a look at his words and his reasoning and come to our own decision on the worth of those words and reasoning. Until then we just have you opinion of what he has said.

  13. Andrew Reynolds, who doesn’t know Mungo MacCallum. Have to go.

  14. Is it this one, who is referred to in Wikipedia as “Mungo MacCallum is also known for his centre-left, strongly pro-Australian Labor Party views”
    Is this the one you are relying on as able to impartially comment on the views of “…every respectable economist in the country…” on a matter of ALP policy? Really?
    BTW – “Mungo” gets no coverage over in WA or, I suspect, most of the rest of the country. So – perhaps many in NSW are aware of him, but not much of the rest of the country.
    If he is the only support you have then you are looking very, very isolated, MoSH.

  15. Good comeback there, MoSH. Maybe you could look at some readership figures for The Monthly, The Byron Shire Echo and the other widely read publications he writes for – like The Northern Star.
    Yes, everyone in Australia must know about Mungo.
    Lol.
    Perhaps you can come up with your own talking points, rather than commenting on the latest fax you get from Sussex Street.

  16. Andrew Reynolds, I’m not going to beat around the bush for Mungo is a highly respected political journalist. In respect to today’s rags you might want to read Clancy Yeates piece, ‘Companies’ threats to pull the plug are questionable’ to get a better idea of all the bulldust being bandied around by the so-called upstanding citizens within the mining community.

  17. MoSH,
    Judging by what I have read of him he is highly respected – within the NSW Right.
    Now, can you point to all of these “respectable economists” who have specifically endorsed this RSPT, rather than an RRT in general?
    There must be a lot of them. Who are they?

  18. Andrew Reynolds, I fail to understand how the Right would be attracted to Mungo’s views but they could learn a thing or two.

  19. @Michael of Summer Hill

    The press release and letter of 22 economists that started this thread supports “a resource rent tax”. It does not talk about “the resource rent tax”.

    The letter and release also says that it is “appropriate to debate modifications to the design of the proposed Resource Super Profits Tax”. The letter also calls for evidence-driven policy.

  20. Perhaps you can call up Sussex Street and ask them. I don’t see the relevance.
    Keeping to the point of this thread, can you point to all of these “respectable economists” who have specifically endorsed this RSPT, rather than an RRT in general?
    There must be a lot of them. Who are they?

  21. @Andrew Reynolds

    He also writes for Crikey. But from your last comment (and most other comments on this blog) you don’t appear to read too much given that you can’t name one respectable economist who supports the RSPT.

  22. Andrew Reynolds, one respectable economist is Nicholas Gruen. Satisfied.

  23. MoSH,
    Do you mean the same Nicholas Gruen who wrote the last two paragraphs of this piece on Troppo? You mean that one that suggests that you listen to the mining industry to make changes to the tax? That one?
    Surely it would have to be someone else, as he suggests that it should be changed. Is there another Nicholas Gruen who is a “respectable economist”?

  24. With newspapers playing such a major role in your daily cycle I guess it is not surprising that you do read.

  25. @Andrew Reynolds

    Gruen’s support for the resource rent tax appears to have major design qualifications over current proposals. Specifically:

    “Henry has recently argued that because the promise to bear 40% of the costs comes from the government, it’s as good as a government bond and so the financial markets should fund it at the bond rate. Fiddlesticks. The government should stump up the cash rather than persevering with an artificial – and costly – scheme to push debt off its balance sheet.”

    Cash refunds would put Australia ahead of Norway in accepting the costs of uncertainty.

    Norwegian oil investments can be deducted against the 50% special tax on oil profits at a rate of 130%, including costs overruns.

    For exploration costs, oil companies receive a cash refund in Norway since 2005 for exploration costs. This is an alternative to carrying the losses forward.

    The combination of a high rate of taxation, generous deduction of costs, cash refunds for exploration and direct state participation in the oil business puts most of the oil industry risks with the government in Norway, relieving the companies of the same.

  26. No Andrew Reynolds, Nicholas Gruen argues that Reources Rent Tax, ‘In fact the policy seeks to put the miner in the same position it would be in if it had agreed to all Australians (though their national government) becoming 40 percent joint venturers in the project – taking 40 percent of any subsequent net profits and bearing 40 percent of the net costs throughout’.

  27. @Michael of Summer Hill

    So a resource rent tax is an unconditional taxpayer offer to share in the losses and profits of mining exploration and extraction. I hope that resources prices keep on the up and up to make this worthwhile.

    If any government made an unconditional offer to go into a joint venture with any cowboy that came along, their judgment would be questioned.

    This deal reminds of Freddie Mac and Fannie Mae. They too were willing to underwrite whatever rubbish that came through the door because the taxpayer was to pick up the tab if things went wrong. Which side of trillion is their bailout now?

  28. Update, Update, Update, latest reports indicate the Coalition will do anything even bend over backwards when it comes to money, money, money. And let’s not forget who runs this country for if Clive and Co think they can do a better job than those in government then I suggest they change careers and enter parliament, otherwise let the government get on with the job of governing.

  29. @Michael of Summer Hill
    You get teh government you acn afford to buy Moshie and Clive is buying the liberals – so lets not be under any illusion as to who really runs the country. Its Clive and his mining buddies.

  30. Update, Update, Update – MoSH pastes yet another ALP talking point in. Ho hum.
    .
    Now, MoSH, I know you have a serious difficulty reading anything that contradicts your view, but just read the last two paragraphs of the piece by Nick Gruen that I linked to and tell me where in Rudd’s policy cash refunds are covered. If you can find that in the current iteration of ALP policy then you are right. If not, you are wrong.
    Sorry – those odd little things called “facts” keep intruding, don’t they?
    Perhaps I should make it even easier for you. You claimed that Gruen is a “respectable economist” that fully (without reservations) supports the RSPT. Here is what he said about one of the more important aspects:

    Henry has recently argued that because the promise to bear 40% of the costs comes from the government, it’s as good as a government bond and so the financial markets should fund it at the bond rate. Fiddlesticks. The government should stump up the cash rather than persevering with an artificial – and costly – scheme to push debt off its balance sheet.

    I therefore renew my challenge to you. Please point out the “respectable economists” (other than Ken Henry, the designer) who fully support this RSPT. One is not enough – you said “[j]ust about every respectable economist”, so there must be a lot.
    List, please. If you cannot do that then there is no evidence that you are correct.

  31. @Andrew Reynolds

    Always be suspicious of references to respectable economists. It is a discussion stopper – an appeal to authority, rather than a pointer to additional well-documented arguments and evidence.

    Surveys of the opinions of the members of the American economic association find that the typical economist is a moderate Democrat. The data yields a Democrat to Republican ratio of about 2.5 to 1. A similar survey of the Canberra branch of the Economics Society of Australia found similar centre-left leanings, as I recall.

    On taxes, some economists get lost in the blackboard economics of optimal tax theory when its suits them.

    Others note that the size of the government increases when taxes, spending, regulation and government administration become more efficient. Inefficient taxes and government spending constrain the size of government.

    You may regard these outcomes as good or bad. At least you have had fair warning. Blackboard economics provides no such warning.

    Still others look to constitutional constraints such as a generality norm. A generality norm requires equality under law.

    Under a generality norm, governments that impose uniform regulation of all industries and use flat taxes on uniform tax bases to fund an equal-per-head demo-grant (or guaranteed minimum income) to replace all existing government cash transfers could be a very large government as a share of GDP. James Buchanan has said that all successful welfare states (such as Sweden) apply a generality norm in some form or another.

    Most politics is caused by conflict of interest and a generality norm helps alleviate this.

  32. I agree Jim, but in this case I am serious. I would genuinely be interested in which “respectable economists” support this, as I have spent the last 30 minutes or so looking and I cannot find any other than Ken Henry who is prepared to support this without qualification.

  33. @Andrew Reynolds

    Harry Truman once said “Give me a one-handed economist! All my economists say, on the one hand, on the other.”

    There are plenty of two-handed economists out and about commenting because the recovery of losses is always the twist in the tail of resource rent taxes.

    They should be refunded in cash. Norway does this since 2005 for exploration costs.

    The treatment is usually asymmetric: pay taxes now, carry forward losses at a low rate of interest. I doubt that there will be an effective secondary market for these resource rent tax losses.

    Larger mining companies will benefit from this pay taxes now, carry forward losses at a low rate of interest because they have a large portfolio of projects that should turn-up a few profitable mines. Smaller mining companies will be more disadvantaged and may have to write-off their losses.

    Without the cash refund upfront and now, the resource rent tax is a flash name to disguise a special much higher rate of company tax on mining. It will be much harder to round up them optimal tax theories to support that without waving both of their hands.

  34. Refunding in cash is a tad naive. Moving from the textbook to the real world requires some understanding of guile. Guile is what business is all about. The asymmetry is rather trivial especially given that only 40 per cent of the “money for nothing” is being clawed back. And as far as offset treatment, Treasury, or at least the ATO, knows: “that’s the way you do it”.

    Interesting non-standard meaning being given to the word ‘support’, Hobo Two. Good for you. Like Chuck Dodgson suggested, you are simply showing the word who is master. Nothing wrong with being master of your own, however little, universe.

  35. Jim Rose :
    @Andrew Reynolds
    Always be suspicious of references to respectable economists. It is a discussion stopper – an appeal to authority, rather than a pointer to additional well-documented arguments and evidence.
    …James Buchanan has said that all successful welfare states (such as Sweden) apply a generality norm in some form or another.

    Hmmm. Yes. And do as I say, not as I do…

  36. @Andrew Reynolds
    Andrew you clearly have not read the twenty two names of respectable economists on JQs statement regarding the RSPT. Yet you claim “only Ken Henry supports it” .Why do we need to make further lists of respectable economists for you? Why would we when you cannot manage to even inform yourself of the economists in support of it. Why dont you compile a list of economists, rather than noisy Mining executives, who dont support it? Better still, why dont you and Jim Rose just keep denying the facts and research and authority and expertise on the matter, and continue to create your own inventive “non facts”. Yours and Jim’s skepticism and suspician of research and expertise and authority is hardly constructive criticism, when you dont even know the arguments of the many respectable economists who do support it.

  37. Alice,
    I have read what the 22 wrote. Did you? They support the principle of an RRT on mining (as, I might remind you yet again, so do I), but nowhere on that letter do the 22 state they support this proposal.
    Try again.

  38. @Alice

    Let me write a reply for either of these two:

    “They don’t ‘support’ it and even if they do they aren’t ‘respectable’ or ‘economists’ or ‘authorities’. But wait there’s more… And even if they are respectable economist authorities how totally low of you to appeal to authorities (that are not mine, but anyway, my authorities – Friedman, Buchanan – are more correctly deities which are so much higher than authorities). Or to use facts that aren’t my facts, that is, the ones I have just made up.”

  39. @Freelander
    LoL – my thoughts exactly Freelander – hobo one, two and three …trifecta of jingoistic hobos – I say hobos because they wander in and wander out like hobos – different names, same old nonsense! The intention is – Lets just make things up (who are you to disagree with our all knowing expertless universe) and dont bother to listen to pesky “authorities” let alone economists.

  40. @Alice

    Ben Smith – one of the 22 signatories of the open letter – has an op-ed in the Australian replying to Henry Ergas that is about which particular tax Smith favoured.

    Smith’s focus is the carrying forward of losses rather than an immediate refund. Smith notes that

    “The RSPT is superior to current arrangements because the community is rewarded for the depletion of resources through the returns to its investment in their exploitation, rather than by taxing the returns on mining company investments as royalties do. However, the tax is opaque and subject to easily exaggerated fears that a future government may renege on its guarantee [to pay a share (say 40 per cent) of all exploration and mine development costs].”

    The solution proposed by Smith is the government should pay its 40 per cent share of project costs up-front, funding this by borrowing and issuing government bonds. This would replace unofficial government debt with official debt. Smith noted that it is easeir to renege on unofficial government debt.

    The Henry Review rejected the notion of upfront refunds as being potentially too onerous on the budget is some years.

    Smith’s support has major qualifications because he wants government to pay up front for its share of mining costs. Smith seems to be for the resource rent tax before he was against it, and the other way around too.

  41. I particularly like the “you debate on my terms and according to my rules which I will amend and change from time to time and don’t consider myself to be bound by”.

  42. “Major” qualifications. Not ‘colonel’ or ‘general’ qualifications? Well hardly rank? Or is it are rank?

  43. “Major” qualifications, not support along with some trivial suggested improvements?

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