Comments on Dennis Shanahan “We should be economically rational about mining”, 14/05/2010, http://www.theaustralian.com.au/news/opinion/we-should-be-economically-rational-about-mining/story-e6frg6zo-1225866340058
While there is some merit in the two-speed economy argument, both the Treasury prescription and the government SRPT design are problematic and very poor.
From their downside, firstly, changing the rule of game when it suits the government for an industry that could many many years to build a project inevitably increases sovereign risks to say the least.
Secondly, if the threat of a mining boom driven by overseas demand by pushing the A$ higher, then there are at least other macroeconomic policies, such as monetary policy options and instruments or increasing imports of more essential capital equipment to improve productivity and infrastructure, which could slow the rise of A$, as opposed to suffocating the mining industry associated with the external demand driven mining boom.
Thirdly, even though the concept of super profits from mining may be correct, how to define it and tax it is much more complicated than both the Treasury and the government have realised and done in their argument and designs of the government’s SRPT as they stand.
One has to wonder how the modelling came about or was done that show an industry will grow more if you tax it more, really begging or stretching everyone's belief.
Translating good economics to good public policies is not a casual work! It requires much better efforts and quality than both Treasury and the government have put in so far.
There is also a high probability that it may not necessarily possible for them to get it right – it depends not only on efforts, but more importantly on true ingenuity and quality that may be sadly and badly lacking in both parts, if the theory of revealed inner quality (similar to the revealed preference theory) is to be believed!