No wonder voters are in despair about Federal politics. The Government passes its Minerals Resource Rent Tax, aka the Mining Super Profits Tax, and the Opposition, rather than concentrate on reselling the reasons for why this is a bad tax spends most of its time pursuing the government because it did a “secret” or “dirty late night” deal with the Greens to get it through.
Here are just a few of the reasons they should have been giving for opposing the legislation.
- As Alan Kohler points out it is a “deficit” tax. That is – it costs more money to implement than it raises. This is the second such tax this government has implemented, the first is of course the Carbon Tax. If every tax was like this the country would be broke. Passing this tax wasn’t about economics, it was about ego. The government didn’t want to lose face so spent what it had to, even if it didn’t have what it spent.
- There is no such thing as a super-profit. It is a theoretical concept subscribed to by some economists that bears no relationship to how the world actually works. There are profits, and there are larger profits. As long as a profit is not gained by milking a monopoly position or government rents it is legitimate, no matter how “super” it is. Many businesses achieve a 20% return on assets. Private businesses typically change hands on 3 to 5 times earnings, which means that it is the norm in the SME world. Banks make that sort of return. Software companies like Microsoft do much better.
- Taxing “super profits” is not a smart thing to do. The Australian economy needs more companies making larger than average profits, that way the economy, and living standards, grows more quickly. Rather than taxing companies that make “super” profits we should be looking at ways to encourage them to locate here, and to encourage companies who are here to become “super” profit earners.
- If taxing mining “super” profits is a good idea this year, then why wouldn’t taxing bank, or software, or private company “super” profits be a good idea next year. If you have a profitable business this tax should make you very nervous next time the government needs money.
- Mining companies do make a contribution to the Australian economy. They pay royalties to Australian states, they pay company tax to the Australian government, and they pay dividends to shareholders, many of whom have the job of looking after the retirement funds of “working Australian families”. In a financial climate when investment returns have been negative, thank god there is an investment that can still make a positive return, but why would you add an extra tax to it?
- Miners do pay for their use of the minerals they mine. The payment is called mining royalties. They may also pay special levies on rail to transport their coal and be provided to pay money to improve community assets in the areas where they operate. When resource prices are high the royalties are even adjusted upwards. The “problem” for the federal government is that these payments go to the states because at federation it was decided that the states would retain the right to minerals mined within their borders. This tax is an act of expropriation from the states and is probably unconstitutional. We’ll no doubt find that out some time after it is passed and one or more of the states take the Commonwealth to the High Court.
- The mining tax is not about sharing the benefits of the mining boom – see point 4. It was originally about grabbing some money to prop-up the government’s bottom line from one of the few sectors that was doing well. It is now just about saving face for the government and the Prime Minister – point 1.
- We are not running out of resources. While Malthus may well prove to be right in the long run, it is a very long run and generations will have passed before it arrives. So there is no sense that this is a once in a lifetime opportunity to grab something for the common good before the resources run out.
- We are not in an absolute position of strength and if we leave the resources where they are they will not necessarily be more valuable tomorrow. Until the industrialisation of China and India the real price of all metals was in a downward trend. That trend will probably reassert itself when those two countries evolve to a stage where they no longer need huge inputs of metals. The net present value of our mineral resources will probably be smaller in the future than it now, so putting barriers in the way of mining companies at a time when the resources are most attractive to them makes no sense.
- Mining is not a sunset industry, it is a sunrise industry. It is a tribute to Australian ingenuity and innovation that we are a world leader in mining. Our mining expertise is not only running mines in Australia, but all over the world. It was pointed out to me last week that PanAust, the largest mining company in Brisbane, doesn’t own a single Australian mine – they are all in South-East Asia and South America. Two other mining stars in Brisbane – Mincom and Runge – aren’t even miners at all, they are mining services companies, selling Australian know-how to other companies all over the world.
That’ll do me for this morning. Ten good reasons to oppose the tax, yet yesterday I didn’t hear the Opposition raise one of them. Nor for that matter did I hear the mining industry, nor a single journalist, with honourable mention of Alan Kohler.