Some people would say that all taxation is theft. I don’t accept that, but in the case of the Rudd government’s so-called Resources Super Profit Tax theft is occurring at two levels. That is what has got me angry about the tax, and I suspect it underlies a lot of the public opposition to it even if it is not articulated.
The theft occurs at two levels. First the tax confiscates wealth from existing mining operations and their shareholders. Second it justifies this on the basis that the minerals belong to all of us, when in fact they belong to the states.
So it is muscling in on the rights of the owners of the companies and the owners of the minerals.
While the government calls the RSPT a tax, it is more like a compulsory joint venture. The 40% tax is justified because in the event that the mine fails, the government will pay 40% of the capital cost to the miner. It is this sharing in the risk that is used to justify sharing in the profit.
But for existing profitable mining operations the government will share in the profits without ever having put in its share of the risk. So it gets its 40% for nothing. In most people’s language taking something without paying for it is theft.
If the government were genuine it would grandfather the tax so that it only applied to mines that were developed from now on. That way everyone would know where they stood and the government wouldn’t get a free ride on the risk of development. But it can’t do that, because if it did, then it wouldn’t collect the billions of dollars which it has budgeted from this tax.
The value of a share should be the net present value of the sum of its anticipated future cashflows. The government just decreased the future cashflow going to shareholders for existing mines by 40%. That means that if you bought shares in a successful Australian mine just before the announcement you have theoretically lost 40% of your investment. Not too many government decisions have that effect.
That mining shares have not dropped to that extent represents disbelief amongst investors that the government will actually be able to implement its tax.
For the states the sums work a little differently. They charge mining companies for the right to extract minerals and they do this by charging a set fee per tonne of ore extracted. They have the ability to increase this fee from time to time.
The federal government has now made it more difficult for them to increase their royalties. By applying an additional charge, which they represent as a tax on the use of the minerals, they effectively freeze the states out of being able to charge more in the future if mineral prices continue to increase. So while the states may be guaranteed their royalties under this arrangement, they get the less profitable end of the bargain with the Commonwealth giving itself the side of the equation that will increase most with increases in the value of the minerals.
The government cannot be allowed to get away with this. If they do, the question will then be, which industry will they target next.
This “tax” is justified on the basis that minerals are a non-renewable resource. They are, but they are not the only non-renewable resources. Land itself is a non-renewable resource, and I can think of a few ways that the federal government might seek to take more than its fair share of development activities, rapid escalations in asset values or highly profitable farming.
It is also justified on the basis of “super profits”. Again, I can think of a few industries at risk. Banking has a high rate of return on funds invested, for example.
On this analysis the tax poses a big threat to the government. It is one thing to increase taxes, but if the public feels the increase is justified, then they may be persuaded to accept it. But when they feel that the tax is dishonest, and you are a government that trades on your moral integrity, then at the same time as you steal the cash from your citizens, you also rob yourself of your authority and your right to demand respect.
Labor needs to retreat from this dismal decision, but it is hard to see how they can.