Countering Some Poor Arguments for a Mining Tax

I was recently asked to comment on an article in The Age by Michael Gilding, entitled “More tax dollars and less mining? That’s a win-win situation”. Here is my response:

Short version: Gilding identifies several problems for which a reduction in mining – though it might help – is the wrong solution.

Longer, point by point version:

Gilding’s first argument, that “mining sucks oxygen (capital investment) from the rest of the economy”, is one I can’t support. The reason is that a basic tenet of economics is that people (the market) make their own best decisions – in this case, investing in mining rather than, say, toll roads. The first rule of taxation is therefore that it distorts private decision-making as little as possible, which makes justifying a mining tax on the grounds that it distorts decisions problematic. (The RSPT, I note, was lauded precisely for NOT distorting investment decisions.)

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Resource Super Profit Tax (RSPT) for Dummies

Updated on Tuesday, May 25, 2010 at 23:03 by MCJ

Since the Australian Government announced its Resource Super Profit Tax (RSPT) recently, based on one of the recommendations of the “Australia’s Future Tax System” review (colloquially known as the “Henry review”, after the head of Treasury, Dr. Ken Henry), it’s become a big topic of discussion. Having had a chance to look at the actual proposal, I feel that much of the mainstream media coverage (including the Government’s attempts to “sell” the tax) has been pretty poor, and am going to have a crack at explaining it:

Underpinning the tax is idea of what we’re taxing: natural resources (i.e. minerals). These natural resources have the characteristic that they are non-renewable – once they’ve been dug up and sold, they’re gone for good. This is quite different to most things produced in Australia, which are goods or services that to a greater (services) or lesser (some goods) extent can be produced again, and again, and again. You can milk a cow today, and milk it again tomorrow; milking it today does “rob” future generations. However, if we mine something today, we can’t mine it again tomorrow: the resource is gone.

Further, natural resources aren’t private. They aren’t skills someone has learnt; they aren’t objects someone has bought or created. They are parts of our country, and as such belong to all Australian citizens. As the Government says (PDF, 372 KB), “If the community undercharges for the use of their non‐renewable resources, it is akin to under‐pricing the sale of a public asset.”

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