Phil Ruthven is the custodian of some of Australia’s most precious corporate information. His IBIS World group has comparative data on Australian industry which allows sensible comparisons to be made. What it shows is that mining in general is not particularly profitable, and not significantly more profitable than many other Australian industries.
In Ruthven’s view, there is no valid argument for putting a “super profits tax” on mining.
In the BRW of June 10-16 (subscription required) he has a table which shows that the most profitable industry with a return on shareholders funds of over 60% is Wholesale/marketers. Mining comes next, but is closely followed by Hospitality, Retail trade and Communications, all showing return on shareholders’ funds of just over 20%.
However this is a recent development, and for the five years to 2006 mining only had a “weighted ROSF of 6.6%, which was less than half the average of all large companies over that period (13.7%)”
One of the most bizarre benefits claimed for the proposed “super profits tax” is that it will make marginal operations more viable. This is a like claiming that our Olympic team will be better because we have devised a scheme to include less gifted athletes in it.
Australians are richest when our industries earn the highest possible returns on our savings. We need a system which encourages them to neglect low growth alternatives and rewards those that are good at finding high growth opportunities.
A tax system which rewards the less successful penalises us all. A Treasury head and a government who think this is a good idea obviously don’t understand economics. If the government really wants to sustainably fill the hole in the budget, rather than just mugging whatever industry seems to be profitable at any particular moment, it will find ways to encourage high return industries. That approach might not return $9 billion the year after next, but over time it will return much more.