Yesterday saw the introduction into federal parliament of the Minerals Resource Rent Tax bills. This marks another retreat from Australia’s position as possibly the best country in the world (see Peter Hartcher’s new book Sweet Spot) along the path that leads to Argentina, or something like it.
The MRRT is not an ordinary tax – it is state-mandated theft whose only real justification is populism (note that yesterday’s news reports carried as part of the justification for the tax the results from a poll which said Australians thought they should be getting more from the mining industry).
It is a bad tax because it taxes companies not on the basis of their earnings, but on the basis of what part of an industry they are in (only coal and iron miners face it), and it has been designed in consultation with some of the larger companies in mining (BHP and Rio for example) to ensure that the tax falls more heavily on their competitors (like Fortescue Metals).
Good taxes do not pick and choose, but apply equally to all.
It is a bad tax because it taxes an imaginary thing – super profits. While some economics text books may say that such a thing exists, it is in fact the sort of profit that everyone in business strives to make. At the moment, miners may be making a profit in excess of 20%, but then so too are banks.
If you look at the flag ships of the new economy – companies like Apple, MicroSoft, Google and Amazon they will all be making super profits because the assets they need to deploy to earn their income are so tiny compared to the size of their income. Successful countries don’t put punitive taxes on these sorts of companies, they work out how to grow more of them.
A good return in a particular industry is a signal to other businesses that this is a good industry to invest in. The more of a country’s assets invested in such industries, the wealthier the country will be. Turn-off the signal, as this tax does, and you turn-off the wealth.
So this tax doesn’t just steal from the companies involved, but it steals from our collective wealth, and it steals from our future growth.
It is a bad tax because it pretends that the commonwealth has a right to mineral rights when it is in fact the states that have that right. States already charge mining companies for the extraction of the minerals, so this tax represents a sort of double jeopardy for the companies involved, and steals from yet another entity.
This tax is a bad tax because it steals from the states.
It is an indictment of the mining industry in this country that the polls appear to favour this tax. When the opposition was campaigning against the tax it was relatively unpopular, but since the opposition moved on, as oppositions must, the tax has been increasing in popularity because the industry has failed to move in to fill the gap.