Koukoulas analysis is biased

Comments on Stephen  Koukoulas "Western Australia's easy ride", 18/02/2013, http://www.businessspectator.com.au/bs.nsf/Article/Western-Australias-easy-ride--Why-Western-Australi-pd20130218-4ZRNT?OpenDocument&src=sph&src=rot

Stephen, you may have a point (Western Australia's easy ride, February 18).

However, one important point is missing from your analysis, that is, how much WA has been contributing to the federation financially in recent mining boom years, not only through taxation revenues, but also through higher FIFO workers possibly from Eastern states.

As an experienced economist, presenting only one side and ignoring the other side of a story is not convincing and cannot achieve the objective of decent and professional analysis.

Yes, federation does have its advantages and part of them are mentioned by you, that is, the scale and diversity of the federation over a much smaller state. It is like a in-built insurance that the federation affords without the need to pay for it.

But that does not equate to a one-sided story ad analysis.

To be comprehensive, a complete and representative analysis is needed to see and tell the costs and benefits of the federation to WA, not for recent years, but also for longer periods, including the past and possibly the future.

Volume based royalty regime not that bad as some think they are

Comments on Stephen Bartholomeusz “The premier factors undermining the MRRT”, 12/02/2013, http://www.businessspectator.com.au/bs.nsf/Article/mrrt-mining-tax-royalties-oakeshott-greens-politic-pd20130212-4U3P3?OpenDocument

Stephen, I think you and many people are mistakenly incorrect on the merits of the current volume based state mining royalty regime and how it practically operates, as well as some of the shortcomings inherent with the profit based resource taxes.

The current state volume based royalty regime is actually not as rigid as you people think it is and it can be changed to suit the actual situation with particular mines, e.g. no royalty or reduced royalty paid in the first number of years of producing minerals and in the late stage where costs are higher.

More importantly, volume based royalty reflects the estimated value of owning the minerals, as opposed to the profit sharing situation under the profit based resources taxes.

To sharpening the point, if companies are so inefficient that they would not produce any profits even though efficient companies would produce, one would have a situation that the value of owning the minerals would be becoming 0.

Further, more efficient firms would be taxed more heavily than less efficient firms in terms of the same minerals, simply because the former generate more profits than the latter do.

Why should owners give away their value to inefficient firms and punish more efficient ones?

Is that fair to the owners or minerals or mining companies?

Further, minerals are generally not renewable products, so a volume based tax can capture that value of non-renewable minerals.

Henry and Treasury people were either naively mistaken or deliberately misleading on this issue on the relative merits of the two regimes.

Other people including many economists and business commentators have been simply too lazy to use their own brain and as a result fallen into the same trap.

So, let's all have a cold shower and have a realistic analysis of the two royalty regimes and not simply ignore the reality and be mistaken hypothesis as actual outcomes.

Discord over WA increase in royalties and the Review of GST Distribution

Comments on Julie Bishop “Swan conjures up a Black Swan from the West”, 25/05/2011, http://www.smh.com.au/opinion/blogs/the-bishops-gambit/swan-conjures-up-a-black-swan-from-the-west-20110525-1f2y4.html


Maybe, the reactions by Swan, Gillard and Ferguson could be explained by the review of GST distribution commissioned by Gillard and Swan and announced in Perth by Gillard on 30 March 2011.

There might have been some understanding/misunderstanding or expectations (or false hopes) that that review would have WA to rethink about its scheduled increase in royalties of its fines iron ore.

The timing for that review is a draft report by February 2012 and the final report by August/September 2012 for consideration for 2013.

It is interesting to note that the final report is expected to be available after the introduction of the MRRT and the carbon tax, assuming both legislations will pass the parliament.

WA may think it will be too uncertain to rely on that review to secure a better funding for it.
Of course, the WA government is a liberal/coalition government and on the opposite political side of the Gillard ALP government.

PS: this fascinating discord involves politics, economics and taxation, as well as federal financial relations. Arguably, it is a very difficult issue even at the best of times of federal politics, not to mention the fact it is at a time the federal government has been experiencing serious difficulties.

Respect the constitutional rights of states

Comments on Kenneth Wiltshire "WA pays heavy price for a problematic federation", 23/05/2011, http://www.theaustralian.com.au/national-affairs/wa-pays-heavy-price-for-a-problematic-federation/story-fn59niix-1226060664190

Professor Kenneth Wiltshire is one of few rare voices to acknowledge the constitutional rights of the states in mineral resources in the mining royalty/tax debate.

Most people ignore the constitution issues and simply argue that mineral resources belong to all Australians. It has become a complex issue with the MRRT/RSPT.

The MRRT/RSPT should have been designed as a replacement of the current less efficient state royalties and belong to the states, as opposed to the designs adopted by Canberra. In that way, the states including WA would have been on side and land their strong support.

In terms of further tax reforms, it is important that the Commonwealth learn from the GST experience to focus on national efficiency and national outcomes, as opposed to attempt to use it to further strengthen the revenue power of the Commonwealth as typified by the MRRT/RSPT designs.

As Professor Kenneth Wiltshire argued, it should consider how to address the vertical fiscal imbalances between the Commonwealth and the states and territories, currently to the tune of about $100 billion.

Swap the GST and personal income revenue is an option. Alternatively, a well designed income tax sharing arrangement may also work, still leaving the GST revenue to the states and territories as currently the case.

This, together with a new design of GST distribution, hopefully resulting from the current review Commissioned by the Prime Minister and the Treasurer, will rationalise the federal financial relation, to make it more efficient by better aligning service responsibilities with adequate revenue sources at the two levels of govenrment in the federation.

Challenges and opportunities for Australian federal relations

Comments on Rob Burgess “WA opens a new front for Abbott”, 20/05/2011, http://www.businessspectator.com.au/bs.nsf/Article/Coalition-Treasury-budget-MRRT-GST-revenue-mining-pd20110520-GZT5S?OpenDocument&src=sph&src=rot

To a person with little knowledge of federation politics, I would think the front that Rob Burgess identified should be handled with a similar principle to the GST agreement that Howard/Costello reached with the state and territory governments.

And that is, in the national interests of reforms to be more efficient, Canberra should provide more growing resources to the states and territories as not only incentives but also an implicit recognition of the rights of the states and territories in the federation.

Further, this front could be combined with the tax reforms front.

In that perspective, it would be wise for Canberra to reconsider its approach to the MRRT proposal.

PS: we have on the one hand that Canberra has been saying that the states and territories would not have the required financial resources to meet the future challenges of healthcare, on the other hand Canberra has been trying to get more and more revenue sources from the states and territories, such as the MRRT or its immediate philosophical predecessor, the RSPT.

Under this kind of approach, how can and will the states and territories have the required financial resources to provide sources including healthcare like public hospitals?

Isn’t the message from Canberra contradicting itself and confusing to the public, knowledged in the field or not alike?

It is other way round - Wayne stole states revenue

Comments on Peter van Onselen “Wayne, they stole your surplus”, 20/05/2011, http://www.theaustralian.com.au/national-affairs/commentary/wayne-they-stole-your-surplus/story-e6frgd0x-1226059271800

The MRRT should be the revenue of the mining states in the first place, given that it was designed and sold as a more efficient form of royalty regime to replace the current less efficient price based royalties.

The federal government has stolen this revenue from the states.

It is not a tax reform any more but a revenue grab by Canberra.

With this as a precedence, it will be more difficult for the federal government to proceed or introduce more national tax reforms involving the states from now on.

PS: the federal government could have involved the mining states for the RSPT or MRRT on a revenue sharing basis, say 50-50.
 
That would get all the mining states on board and saving the need for them to jack up their own royalty rates.
 
More importantly, that would mean the MRRT would be a really national tax reform.

PPS: Additional comments:

The wording in the title of the post does not appear to be correct or appropriate.

Mineral resources in each state belong to that state and imposing royalty on mining production is a right of the state.

Rather than they stole surplus from Wayne, Wayne's surplus proposition has been based on the inclusion of revenue that is rightfully the states'!

Who stole from whom?

The author probably should get some advice from constitution layers on the issue.

A potential structural deficit in using MRRT to fund company tax cuts

Comments on Joe Kelly “Industry attacks Greens vow to oppose company tax cuts”, 29/03/2011, http://www.theaustralian.com.au/national-affairs/industry-attacks-greens-vow-to-oppose-company-tax-cuts/story-fn59niix-1226029856403

Leaving aside whether the Australian company tax is international competitive or not, the tax cuts to company tax rates MAY ACTUALLY COST more than the MRRT would collect.

Remember that there are reports that the big three mining that did the deal MRRT with Gillard might not believe the MRRT would collect as much as Treasury study forecast? They are big companies and it's their money at stake, so they were unlikely to have made a mistake in their calculation. I'd bet they were/are correct.

Further, remember Treasury's number changes in the tax revenue estimates between Rudd's SPRT and Gillard's MRRT? It was suspicious then and it is still suspicious now. It looked like a joke and it has been one.

If an independent audit was done for the Treasury estimates, it would shed some light on the issue.

All they suggest is that the MRRT will not collect the amount of revenue that the Gillard government has been saying.

Time for Gillard tp deliver

Comments on Joe Kelly “Ferguson calls Greens basket-weavers and labels leader 'soapbox' Bob”, 25/03/2011, http://www.theaustralian.com.au/national-affairs/climate/ferguson-calls-greens-basket-weavers-and-labels-leader-soapbox-bob/story-e6frg6xf-1226027938159

Now some real cracks have emerged between the Labor and the Greens coalition, over both issues of the MRRT and the carbon tax.

Can the ever changing Gillard solve the seemingly insoluble issues with the Greens on the one hand and the public (including the formidable larger miners) as well as the independents on the other?

She could offer promises over promises in negotiations with the Greens and the independents in the period to form the government, but that period is well and truly over and now she has to deliver or not to deliver.

Although it would be better if she goes to the voters and ask for a mandate to have the rights for introducing a carbon tax, she would be a really formidable political leader and prime minister should she resolve both her MRRT and the carbon tax issues successfully, to the satisfactions of both the Greens and the public and the independents.

It would not really matter whether she does it with the real or fake Julia as long as she did it.

MRRT has become a revenue grab by Commonwealth

Comments on James Massola "Gillard government's warning to states on mining royalties”, 24/03/2011, http://www.theaustralian.com.au/national-affairs/gillard-governments-warning-to-states-on-mining-royalties/story-fn59niix-1226027467391

The main idea of this tax was to replace the so called inefficient price based royalty regime with a profit based royalty regime. The states have the rights for mineral royalties, therefore the MRRT revenue should belong to states, as opposed to being a monopoly by the Commonwealth.

This whole drama by Swan et al, dressed up as a reform, has been a sham and a tax grab by the Commonwealth from the states.

The Commonwealth has talked about how the states would not have the resources to meet future health spending needs. Judged by this, they are correct, because they choke the states to death by steal their revenue.

It makes any reforms proposed by the Commonwealth in terms of federal relations a subject of cynicism, on the part of the Commonwealth.

Shame, isn’t it?

True that "The carbon tax is no RSPT" - but more than it

Comments on Rob Burgess “The carbon tax is no RSPT”, 14/03/2011, http://www.businessspectator.com.au/bs.nsf/Article/carbon-tax-Julia-Gillard-Tony-Abbott-RSPT-pd20110314-EWRLU?OpenDocument&src=sph&src=rot

I think Rob Burgess is too optimistic on the relativity of carbon tax versus RSPT.

The political difficulties of a carbon tax and sell it to the public, businesses and political parties are no easier than the RSPT.

Yes, Rudd and Swan made huge mistakes in being inflexible in their approach to the RSTP, though as the subsequent MRRT showed it would be a much easier job to achieve a mineral tax even though it was arguably possible to do better than Gillard's MRRT.

For a carbon tax, the political interests diverge to a much greater extent. There are differences between businesses and consumers in terms of impact and compensations. There are differences between political parties in terms of how much the tax should be to achieve a particular goal.

Further, while a mineral profit tax only targets a sector of the economy, a carbon tax affects the whole society, businesses and consumers alike.

Who or what business does not consume energy that has emissions attached to it?

As well, the carbon tax is supposed to tackle global warming and there is a legitimate point about the effectiveness of Australia's action alone.

There are uncertainties about the science. There are uncertainties about the effectiveness. There are about the management of the current government in terms of policy delivery and project management in terms of waste of public money.

Those are not so easy to overcome as Rob Burgess suggests.

A Sovereign fund from resources good but hard to secure its proper use

Comments on Peter van Onselen “Greens' support for a sovereign wealth fund to quarantine mining proceeds deserves praise”, 9/03/2011, http://www.theaustralian.com.au/business/opinion/greens-take-a-bow-for-the-sovereign-wealth-fund-policy/story-e6frg9if-1226018002862


A sovereign wealth fund is not a bad idea, though it would be better called a sovereign natural resources fund.

There are a number of issues related to such an idea.

Firstly, the Greens may want to increase the tax for mining much more heavily than reasonable, that can cause enormous damages to the Australian mining industry and hence the whole economy.

Secondly, the current government is only interested in suing the mining tax for its own budgetary purpose, and is not really interested in the long term, especially for the future generations. The Future fund set up by the previous coalition government has been used already by the Rudd/Gillard Labor government. That is a very bad precedent.

Thirdly, there can hardly be real guarantee that the current and any future government do not use it to cover its own short term budgets.

Should such a fund be established, there must be much stronger and more stringent conditions for any government to use it.

MRRT should be given to the states

Comments on Rob Burgess “Gillard's risky MRRT splurge”, 14/02/2011, http://www.businessspectator.com.au/bs.nsf/Article/Julia-Gillard-politics-government-MRRT-mining-heal-pd20110214-E2RW6?OpenDocument&src=sph

Maybe a compromise for the use of the mining tax inclusive of state mining royalties is that a proportion of the total revenue be spent on current expenditure and the rest being put into a future fund.

It is difficult for the current governments to put aside all the mining revenue for future use.

But it is also prudent and indeed a must to have this resource rent that is depleted for the use of future generations.

Hence the compromise comes.

However, the federal government got it wrong in the first place in terms of the RSPT and MRRT - it simply is grabbing the revenue from the states and use it for its own purpose, as opposed to propose to put it aside for the future.

It shouldn’t have done that way.

On the one hand, it pressures the states by saying that their future revenue is not enough to foot the health bills, on the other hand it chokes the states off one of their very important own revenue source, that is, mining royalty in the guise of RSPT or MRRT.

Strictly speaking it is not a reform for the benefit of the nation, but a revenue grab by the federal government!

Can you have poorer government than that?

Federal Labor should be wise on MRRT with the states

Comments on Paul Kelly “Labor can't afford another humiliation”, 24/12/2010, http://www.theaustralian.com.au/news/opinion/labor-cant-afford-another-humiliation/story-e6frg6zo-1225975606789

Well, Paul, you have set a bar that is too high for Labor.

Another humiliation, unfortunately, is on the way and is inevitable, that is the fight with the states on state mining royalties.

Unless Gillard/Swan and the federal government retreat immediately from their current attempt to force the states to bend to its will on mining royalties, they may lose even more including their current MRRT to the states, should they mount a constitutional challenge on the constitutional validity of the federal government to impose that tax.

The fundamental fact is that the right to royalties or mineral rents as the MRRT says, belongs to the states, unless the land belongs to the Commonwealth.

Gillard and Swan need to be much wiser to launch a fight with the states to pick up royalty revenue from the States.

They have been silly on this for some time and now they need some sanity in their own minds.

What does the entire above mean? It means that another humiliation is already on them, sadly to them.

The fate of MRRT

Comments on Matthew Stevens “Scrap MRRT and start again”, 22/12/2010, http://www.theaustralian.com.au/business/opinion/scrap-mrrt-and-start-again/story-e6frg9lx-1225974669534

Maybe the proposed tax summit next year could provide a useful and convenient opportunity for changing the course of the current MRRT, to make it better and have the effect of scraping it and starting "designing this thing all over again".

That could provide a compromise for everyone currently involved, and also could meet the demand of the Greens.

But people need to guard against the Greens push for a higher effective mining tax than the current MRRT. The Greens have a wider agenda and tend to ignore the practical side of common economics in their single minded pursuit of environmental objectives.

A higher effective mining tax would be very much detrimental to the nation’s interest by killing off the mining industry in Australia and force it to move overseas, or at least to reduce their investment in Australia significantly.

Use the Mining tax to reduce vertical fiscal imbalance

Comments on Dennis Shanahan “Gillard retreats on levy to save hide”, 22/12/2010, http://www.theaustralian.com.au/gillard-retreats-on-levy-to-save-hide/story-fn6nj4ny-1225974698079

While it is obviously a moot point to move the fight from with the miners to with the states, one would hope that is only a face saving tactics.

If the Gillard government really wants to fight with the states on mining royalties, they may well lose that war constitutionally, given that the states are custodians of their land including the mineral wealth embedded in the land. What it means is that the states are entitled to mining royalties and if the mining tax is a form of royalties, then they should belong to the states as opposed to the Commonwealth.

Even leaving the constitution issue aside, the existing vertical fiscal imbalance suggests that it is not wise for the Commonwealth to grab more tax powers from the states. Rather, it should do the opposite, that is, to give more tax powers to the states to strengthen their finance for meeting the future challenges of services provisions.

This is particularly clear in the wake of the national health / public hospitals reform, which used the prospect of the states’ inability to have the necessary revenue in the longer term to meet the needs of public health in the future.

Further centralisation of revenue powers is not necessarily good for the nation. It blurs the already unclear responsibilities and accountability between the two important layers of government in Australia.

The Commonwealth should not act as a big brother and treat the states with contempt. A truly cooperative federation requires the Commonwealth to be wiser and altruism, focusing on what it should do and do them better, as opposed to bully the weaker states.

Mining tax should be returned to the states

Comments on Matthew Franklin and Amanda O'Brien “Gillard to take mining tax to COAG”, 21/12/2010, http://www.theaustralian.com.au/national-affairs/gillard-to-take-mining-tax-to-coag/story-fn59niix-1225974171014

The problem with the MRRT or RSPT is that the federal government tries to grab mining revenue that should belong to the States.

That is where the tension of whether future increases of royalties by the states can be credited to offset the proposed tax.

Imagine that if all the proposed tax proceeds go to the states where the mining occurs, then there would be such contentions on increasing the royalties by the states or not.

In retrospect, it appears that the Henry review had a natural bias towards to benefit the federal government in terms of revenue.

The process of tax reforms proposed by the Henry review, if the mining tax is to be used as an example, will further exacerbate the vertical fiscal imbalance in Australia.

That is not good for a good federation – a well functioning and efficient federation requires clearer responsibilities and revenue powers at each level of government of the federation. But Henry review, so far at least, has not assisted in that direction.

MRRT and revenue for the states

Comments on Dennis Shanahan “All eyes on Gillard to produce the goods as Labor's vote goes into reverse”, 20/12/2010, http://www.theaustralian.com.au/national-affairs/all-eyes-on-gillard-to-produce-the-goods-as-labors-vote-goes-into-reverse/story-fn59niix-1225973588561

Gillard clearly should stick to her bargain on the MRRT that replaced the flawed RSPT started by Swan and Rudd and ultimately brought down Rudd.

The key must be no or little retrospectivity, that is to say, to make a distinction between existing mining production and future increased mining production.

With that in mind and starting with the agreed MRRT as an intermediate step, the strategy is to design an optimal transition for a mining tax.

The government should not be too greedy in terms of tax grab.

Another key is that the tax mining proceeds should go to the states where they are generated.

The federal government has used the fear of no future revenue for public health in its negotiation with the states, so now we have an increase in mining tax and mining royalties are in the domain of the states, any increased proceeds should go to the states to boost their revenue power to meet future challenges from increased demand for public health.

The Henry tax report should have make this point clear in terms of tax reform to also reform the vertical fiscal imbalance between the two levels of government.

If it didn't, that is a pity and that should be addressed in the planned tax summit next year.

On industry assistance

Comments on Paul Kelly “No time to rest on our laurels”, 15/12/2010, http://www.theaustralian.com.au/news/opinion/no-time-to-rest-on-our-laurels/story-e6frg6zo-1225971162407
Paul, as you pointed out, "Labor's double dilemma is to deliver fiscal restraint post the global financial crisis yet to manage the structural pressures arising from the mining boom."

In that context, it is interesting to see how to interpret and apply correctly one of Banks' listed items, namely "less industry assistance", as well as the introduction of a new mining tax MRRT.

Broadly speaking, the introduction of the MRRT and the lowering of company tax rate is a form of general industry assistance, isn't it? That is because they assist all other industries against the mining industry.

So to manage the mining boom and the two speed economy does require differential treatment to different industries and that is broadly industry policy or assistance.

Someone may say that is not the same as industry assistance, but that betrays the underlying logic of the MMRT and using the proceeds to lower company tax rate. That is no less than or no different from using spin in argument.

In a sense, that would not necessarily to increase or decrease productivity, given that it is our export market customers that pay for this adjustment through the high prices they have to pay for our minerals.

However, that does illustrate the dilemma of the indiscriminate argument against industry assistance.

Governments everywhere do it, albeit in different forms and guises. Needless to say some are good and some are bad in their effects.

Mining tax rights and the Australian federation

Comments on Dennis Shanahan “Facing a new mining war”, http://www.theaustralian.com.au/news/opinion/facing-a-new-mining-war/comments-e6frg6zo-1225961149433
There are bigger issues involved in the MRRT. The first one is in the current federation who do resources belong to constitutionally, the states or the federal?

The second issue is should the states have the right to tax the rent of those resources, what can/should the federal do in terms of resources rent taxes? Should that simply grab the tax revenue, or should it respect the states' rights and work with the states to make the royalties or resources rent tax more efficient.

Third, how should the royalties/tax of resources be distributed between the states and the Commonwealth if any should be given to the latter, and how should that tax be used or be kept for future generations?

Fourthly, are the constant threats by the federal government to the states productive and conducive to cooperative federation and to the wellbeing of all Australians? There should be a clearer definition what the Commonwealth can and cannot do in terms of federal relations.

It is a myth to believe that Canberra can do better than the state governments in terms of servicing the people, no matter how poor state governments have shown in some areas.

Just ask the question: if all state governments from all the major political parties cannot do a service well, how can a government of any political persuasion from Canberra can do it better?

The fundamental issues of poor state government services may lie in the poor resources and unclear responsibilities of revenue and services between the two levels of government in Australia. Unless those issues are resolved, any faith on federal government for better services is likely to be badly misplaced.

Challenging issues make the major parties work better

Comments on Jennifer Hewett “Issues bring parties back to reality”, 18/09/2010, http://www.theaustralian.com.au/news/opinion/issues-bring-parties-back-to-reality/story-e6frg6zo-1225925579971
The three instant pressure points that Jennifer Hewett listed, namely the NBN, climate change and the mining tax, are good and challenging issues to test the major parties. The current hung parliament means they will both have to work very hard to convince the independents and the greens which jointly hold the balance power in the lower house.

The costs and benefit of the NBN, its implementation / roll out and its take up rates will be important for both the major parties to battle. The government will need to strictly control the costs of roll out and rely on the consumers to take up and use it. The opposition will need to identify where cost issues or low taking up rates will be and use them to discredit the government's NBN rationale.

For climate change, the government is likely to go with the Greens' idea of a carbon tax and use the revenue for consumers / people as opposed to businesses or polluters, although the initial tax is likely to be low and tentative to test its effective. That is likely to increase efficiency and lower costs.

The opposition, on the other hand, needs to gradually realise its current direct approach with little use of market mechanism, will become irrelevant in the current political environment and need to come up with a good strategy to neutralise the issue and hold the government to account to make the policy the best possible, that is, to minimise the costs of any emissions reduction. If it persist with its no tax approach, it will lose credibility in its climate change policy.

The mining tax will be an interesting case for all parties. The current agreement between the government and the three biggest miners is unlikely to generate enough revenue as the government estimated. Besides, there are issues that other miners are unhappy with the agreement.

The greens want to have a higher mining tax, but that will make both the government and the rural independent MPs uncomfortable. The opposition does not want the tax. So the mining tax will greatly test Gillard's leadership skills. One clear danger is that Swan as the Treasurer will be a significant handicap to the government, as the initial stage of the government's mining tax development indicated. Again, the opposition should play a constructive role in the sense to hold the government to account to make the tax best possible.
 
The government needs to explain to the public what it ageed to for any policies for climate change and mining tax are the best possible under the current political circumstance.