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2010-06-18

A true super profits tax on mineral resources?

Comments on Henry Ergas “Kevin 7/11 needs to think long term”, 18/06/2010, http://www.theaustralian.com.au/news/opinion/kevin-711-needs-to-think-long-term/story-e6frg6zo-1225881068608
It appears that few taxes are not distortionary in practice.

The Brown tax has its own problems. Firstly, why should the government be a passive partner in mining investments? Secondly, why should the owner of mineral resources to take an equity return with no return to the value of the mineral ownership?

Further, while the PRRT style taxes, like most taxes, can't avoid distortions, the set of the tax-free threshold clearly should surely allow the minimisation of distortions.

If that is considered unacceptable, maybe a resources profits tax based on the movement of resources prices should be considered. Under such a resource profit tax, the tax can be progressive if the prices are above a reference level, or above a reference level relative to other general prices. The higher the resources prices, the higher the profit tax rate.

It would be a really super profit tax on resources if resources are taxed in such a way. It, however, could be a bit more complex.

As with all other similar tax proposals, there is a need to treat existing mining production differently and I am afraid to say that will make it even more complex. But that is life.

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