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2010-05-24

Swan needs more independent advice on RSPT

Comments on Wayne Swan “A tax that will boost growth”, 24/05/2010, http://www.theaustralian.com.au/news/opinion/a-tax-that-will-boost-growth/story-e6frg6zo-1225870279541
Mr Treasurer, it is good to see you try to explain the tax to the public. It has become absolutely necessary, hasn’t it?

However, it seems very likely that the Treasury modelling was problematic, either with wrong assumptions used, such as the differential impacts of the marginal effects on less profitable mines versus the industry effects of the tax proposed, (the results of the two effects are obviously dependent on the assumptions used) or with the wrong internal model logic, including but not limited to the international effects.

The international effects include capital mobility, demand and supply of mineral products and the outlook of international prices for a longer period, different impacts of the tax on international supply from different regions.

If you and the government believe the tax is important for the economy and a significant tax and economic reform, you should support and provide more independent studies to get the modelling absolutely right and correct.

Only independent studies can have the credibility for the public to support the tax reform. It is not too late for the government to do it.

By the way, if the purpose of the tax is to get a fair share of the resource rent taking into account of risks involved in mining, there is no need at all for the government to be involved in undertaking the risks imposed by any businesses.

In the same logic with the same purpose, the current State royalty regime may not be as bad as most people currently think it is. It gets at least some rent value for the finite resources even when a mine is not very profitable as long as it produces and sells minerals. Why should the owner of an asset give it away for free if the renter of the asset can’t make much money? Further, when prices go up, the mineral rents also go up accordingly, so does company tax.

In hindsight, it would have been better to release the Henry tax report when the government received it, but stating that the government was considering all the recommendations but having made no decisions to rule in or rule out any.

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