Comments on Rob Burgess “We need better taxes, not bigger taxes”, 30/03/2011, http://www.businessspectator.com.au/bs.nsf/Article/tax-reform-Bob-Brown-revenue-MRRT-mining-tax-pd20110330-FES3V?OpenDocument&src=rot
This article seems like a confused argument that may cause more confusions.
In terms of the relative position of Australian company tax rate, the article appears self defeating but refused to concede that it might be a case that it does not need to be lowered at present.
In terms of impact of mining and higher $A on the tax revenue from other businesses, the article lacks a coherent and consistent logic too.
If the tax revenue from other businesses were to fall by mining boom and high $A, then further lower the company tax rate will do nothing to keep the government budget unaffected or neutral or its integrity.
Even from equity point of view between business and labour, the argument for reducing the company tax rate only stacks up if businesses are indeed have to provide higher superannuation for employees without effectively lower employees wages or slowing the growth of them, so all taxpayers benefit from a lower company tax rate. There is no guarantee that employees will not be negatively affected or worse off in that process.
If it is to consider the future, then there is a strong point not to lower the company tax rate and instead to put the MRRT into a future fund.
To conclude, while it has been taken as a faith to lower company tax rate, the arguments in this article are not convincing.
Having said that, I find some attraction from its title.
Showing posts with label resources tax. Show all posts
Showing posts with label resources tax. Show all posts
2011-02-14
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?
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?
2010-09-05
Arguments without substance
Comments on Meganomics Blog “Giving a little will gain a lot more”, 4/09/2010, http://blogs.theaustralian.news.com.au/meganomics/index.php/theaustralian/comments/giving_a_little_will_gain_a_lot_more/
There are very different and opposing views on the mining tax, that is, the RSPT.
We've seen a bunch of so called leading or eminent economists writing an open letter in supporting it and the Greens asking for an even higher mining tax on the one hand. On the other, we've seen some arguing that it was a stupid idea coming out of some Canberra bureaucrats with no sense of the real world and that international investors were holding their investments and many talked about the so called sovereign risks.
So problems with such a serious divide lie in that they haven't got or don't have a clear and consistent set of criteria what a good tax is to judge the RSPT.
Those economists and commentators arguing it was a good idea or tax just compared the two cases superfacially that left many details out, that is, a tax on resources either based on either price or profit. Obviously that kind of approach clearly has a problem. For example, no one would/could argue for an 100% tax rate, but that is among the profit based tax set.
Those on the other side haven't articulated a clear set of criteria to base their case either.
There was a lack of quality there.
That has been a serious problem in that debate.
There are very different and opposing views on the mining tax, that is, the RSPT.
We've seen a bunch of so called leading or eminent economists writing an open letter in supporting it and the Greens asking for an even higher mining tax on the one hand. On the other, we've seen some arguing that it was a stupid idea coming out of some Canberra bureaucrats with no sense of the real world and that international investors were holding their investments and many talked about the so called sovereign risks.
So problems with such a serious divide lie in that they haven't got or don't have a clear and consistent set of criteria what a good tax is to judge the RSPT.
Those economists and commentators arguing it was a good idea or tax just compared the two cases superfacially that left many details out, that is, a tax on resources either based on either price or profit. Obviously that kind of approach clearly has a problem. For example, no one would/could argue for an 100% tax rate, but that is among the profit based tax set.
Those on the other side haven't articulated a clear set of criteria to base their case either.
There was a lack of quality there.
That has been a serious problem in that debate.
2010-07-08
Issues of RSPT and MRRT again
Comments on Christopher Findlay “Australia’s new taxes on minerals”, 7/07/2010, http://www.eastasiaforum.org/2010/07/07/australias-new-taxes-on-minerals/
It appears to me that both the original but failed RSPT and the new and largely agreed MRRT would have some bad legacy.
The original RSPT in the form as it was had a number of design flaws, such as the retrospectivity, the relationship between the uplifting rate and tax rates.
Of course, it also was unclear why the tax rate should be at 40%, that is, why it should not be higher or lower, even though some economists would say it was an elegant tax.
The efficiency of that tax would have been offset by the existence of two taxes (the RSPT and state royalties though the latter would be credited to offset the RSPT) in addition to the company tax.
The MRRT, softened some of the issues in the original RSPT, but as Findlay said it was agreed in a negotiation and a very short negotiation indeed due to the particular political environment.
Of course, the MRRT has a much narrower scope that is another serious shortcoming to start with that tax.
On a different note, if the purpose is to replace the royalty with a profit tax, then why would or could it not be done by just adding an appropriate percentage point to the company tax rate for mining companies?
The company tax is a profit tax and the new tax is another profit tax and why to have all the fuss to have two profit taxes on the same mining companies but using different accounting? Wouldn't one profit tax be more elegant in terms of simplicity and efficiency to both the government and mining companies in terms of accounting and bookkeeping?
Some may say that companies may have different content of mining. But that could be accounted for at least as easily as the two different company profit taxes applied to those mining companies.
It appears to me that both the original but failed RSPT and the new and largely agreed MRRT would have some bad legacy.
The original RSPT in the form as it was had a number of design flaws, such as the retrospectivity, the relationship between the uplifting rate and tax rates.
Of course, it also was unclear why the tax rate should be at 40%, that is, why it should not be higher or lower, even though some economists would say it was an elegant tax.
The efficiency of that tax would have been offset by the existence of two taxes (the RSPT and state royalties though the latter would be credited to offset the RSPT) in addition to the company tax.
The MRRT, softened some of the issues in the original RSPT, but as Findlay said it was agreed in a negotiation and a very short negotiation indeed due to the particular political environment.
Of course, the MRRT has a much narrower scope that is another serious shortcoming to start with that tax.
On a different note, if the purpose is to replace the royalty with a profit tax, then why would or could it not be done by just adding an appropriate percentage point to the company tax rate for mining companies?
The company tax is a profit tax and the new tax is another profit tax and why to have all the fuss to have two profit taxes on the same mining companies but using different accounting? Wouldn't one profit tax be more elegant in terms of simplicity and efficiency to both the government and mining companies in terms of accounting and bookkeeping?
Some may say that companies may have different content of mining. But that could be accounted for at least as easily as the two different company profit taxes applied to those mining companies.
2010-07-02
From RSPT to MRRT - significant improvement
The Gillard government has reached an agreement with three big miners on a profit based resoruces tax regime. It is called mineral resoruces rent tax.
It represents a significant improvement from the Rudd government's original RSPT proposal.
The main features of the tax:
The headline rate is changed from 40 to 30 per cent
Only applies to iron ore and coal
Mineral valued at mine gate
Miners can use either book value or market value
The uplift rate is long term government bond rate if market value used and plus 7 per cent for if book value used
Small miners with profit less than $50 million don't pay the tax
PRRT will continue for oil and gas and will apply to both onshore and offshore production
More details can be seen from:
http://www.theaustralian.com.au/politics/full-statement-and-detail-of-new-mining-tax/story-e6frgczf-1225887000521
It represents a significant improvement from the Rudd government's original RSPT proposal.
The main features of the tax:
The headline rate is changed from 40 to 30 per cent
Only applies to iron ore and coal
Mineral valued at mine gate
Miners can use either book value or market value
The uplift rate is long term government bond rate if market value used and plus 7 per cent for if book value used
Small miners with profit less than $50 million don't pay the tax
PRRT will continue for oil and gas and will apply to both onshore and offshore production
More details can be seen from:
http://www.theaustralian.com.au/politics/full-statement-and-detail-of-new-mining-tax/story-e6frgczf-1225887000521
2010-06-29
Verrender's mischief-making
Comments on Ian Verrender “Mischief-making by big miners is on the nose”, 29/06/2010, http://www.smh.com.au/business/mischiefmaking-by-big-miners-is-on-the-nose-20100628-zf6h.html?posted=sucessful
While I share your idea of modify the proposed RSPT to something similar to the PRRT possibly with a lower tax rate. However, that is where our agreement ends.
Your argument that "For it is the existing mines, particularly those in operation for decades, that actually earn the super profits" seems to be a lot of nonsense. If you had just become a shareholder of those companies the day before the announcement of the RSPT, were you really making super profits by any of your imagination?
Shareholders of listed public companies don't have super profits due to share market arbitrage.
It seems that you simply do not understand the reality, do you?
For the rest of your argument, you can judge for yourself.
While I share your idea of modify the proposed RSPT to something similar to the PRRT possibly with a lower tax rate. However, that is where our agreement ends.
Your argument that "For it is the existing mines, particularly those in operation for decades, that actually earn the super profits" seems to be a lot of nonsense. If you had just become a shareholder of those companies the day before the announcement of the RSPT, were you really making super profits by any of your imagination?
Shareholders of listed public companies don't have super profits due to share market arbitrage.
It seems that you simply do not understand the reality, do you?
For the rest of your argument, you can judge for yourself.
Swan still swimming in the wrong direction
Comments on Alan Kohler “CEO PULSE: An unfair tax feast”, 29/06/2010, http://www.businessspectator.com.au/bs.nsf/Article/RSPT-mining-tax-rent-tax-Rudd-Gillard-pd20100629-6USUE?OpenDocument&src=sph
The most irony of the ALP leadership change is the promotion of Swan.
He was the most damaged minister of the Rudd ministry, probably as much as Rudd himself.
But he is from the right faction and it wants a senior representation in the leadership.
I think if Gillard is intelligent enough, she should sideline Swan in real terms while he still is apparently the deputy and Treasurer.
She should let Ferguson to do the hard work carrying her instruction, and step into the front when the deal with the mining industry is reached, leaving Swan only at the side of the room or table.
They should not do a separate deal with the CSG and should do a modified PRRT and call it RRT. There should be a uniform tax regime for the mining industry. The modification is the tax rate – it should be a little lower. It would be also possible to slightly increase the lift rate by a percentage point. By these two modifications, all mining can be accommodated.
Of course, as with the introduction of the PRRT, they should not be applied to existing mining production, except when there are further increases in mineral prices from the time the tax is agreed upon. If mineral prices are further rising, then those increases could be taxed.
Exact details can be worked out down the track, but an in-principle can be agreed.
That should be the blueprint for the mining tax front and that is the only practical strategy for her to take.
PS: the following is the first few paragraphs of the Kohler post:
“Australia’s CEOs are hoping Wayne Swan is not really as silly as he looked in Toronto, and that he comes back from the G20 meeting a wiser man than when he left.
As he strutted around Toronto saying: “we’re miles ahead of the game, you know”, other finance ministers would not have been envious, they would have been laughing. Meanwhile his colleagues back home are desperately trying to find a way out of the RSPT mess he left behind.
CEOs surveyed in the monthly Business Spectator Accenture CEO Pulse want Prime Minister Julia Gillard to fix the RSPT fast, and preferably drop the tax entirely – which is remarkable when you consider that the resource super profits tax is financing a cut in the company tax rate.
Most of the CEOs surveyed are not in the mining industry are therefore beneficiaries of the RSPT through the proposed cut in the company tax rate from 30 per cent to 28 per cent. But they’re not happy about that – they are too worried about the impact of the RSPT on Australia’s international reputation for stable and sensible government.”
The most irony of the ALP leadership change is the promotion of Swan.
He was the most damaged minister of the Rudd ministry, probably as much as Rudd himself.
But he is from the right faction and it wants a senior representation in the leadership.
I think if Gillard is intelligent enough, she should sideline Swan in real terms while he still is apparently the deputy and Treasurer.
She should let Ferguson to do the hard work carrying her instruction, and step into the front when the deal with the mining industry is reached, leaving Swan only at the side of the room or table.
They should not do a separate deal with the CSG and should do a modified PRRT and call it RRT. There should be a uniform tax regime for the mining industry. The modification is the tax rate – it should be a little lower. It would be also possible to slightly increase the lift rate by a percentage point. By these two modifications, all mining can be accommodated.
Of course, as with the introduction of the PRRT, they should not be applied to existing mining production, except when there are further increases in mineral prices from the time the tax is agreed upon. If mineral prices are further rising, then those increases could be taxed.
Exact details can be worked out down the track, but an in-principle can be agreed.
That should be the blueprint for the mining tax front and that is the only practical strategy for her to take.
PS: the following is the first few paragraphs of the Kohler post:
“Australia’s CEOs are hoping Wayne Swan is not really as silly as he looked in Toronto, and that he comes back from the G20 meeting a wiser man than when he left.
As he strutted around Toronto saying: “we’re miles ahead of the game, you know”, other finance ministers would not have been envious, they would have been laughing. Meanwhile his colleagues back home are desperately trying to find a way out of the RSPT mess he left behind.
CEOs surveyed in the monthly Business Spectator Accenture CEO Pulse want Prime Minister Julia Gillard to fix the RSPT fast, and preferably drop the tax entirely – which is remarkable when you consider that the resource super profits tax is financing a cut in the company tax rate.
Most of the CEOs surveyed are not in the mining industry are therefore beneficiaries of the RSPT through the proposed cut in the company tax rate from 30 per cent to 28 per cent. But they’re not happy about that – they are too worried about the impact of the RSPT on Australia’s international reputation for stable and sensible government.”
2010-06-26
Giaalrd should get independent advice on RSPT
Comments on Jennifer Hewett “Swan ducks out of town”, 26/06/2010, http://www.theaustralian.com.au/news/opinion/swan-ducks-out-of-town/story-e6frg6zo-1225884439924
I think she might invite some respected and independent business leaders, such as the future fund boss and the government's infrastructure investment advisor and some tax specialists for a private meeting to get some advice how to redesign the RSPT to make it workable to satisfy both the government and the mining industry.
Such people are able to suggest the best way forward, more than both the government people and those miners because they have not very emotionally involved in the previous negotiations, or the Henry Review.
Even to get some fresh views would be important to the government.
Further, it can give the government a way to make significant changes without being seen as a backdown under the pressures from miners.
I think she might invite some respected and independent business leaders, such as the future fund boss and the government's infrastructure investment advisor and some tax specialists for a private meeting to get some advice how to redesign the RSPT to make it workable to satisfy both the government and the mining industry.
Such people are able to suggest the best way forward, more than both the government people and those miners because they have not very emotionally involved in the previous negotiations, or the Henry Review.
Even to get some fresh views would be important to the government.
Further, it can give the government a way to make significant changes without being seen as a backdown under the pressures from miners.
2010-06-25
From RSPT to a sensible RRT
Comments on Dennis Shanahan “PM hits gold with her mining tax stance”, 25/06/2010, http://www.theaustralian.com.au/news/opinion/pm-hits-gold-with-her-mining-tax-stance/story-e6frg6zo-1225884022129
I think Gillard is right in being open to negotiation with miners and not being bonded to the $12 billion revenue from the proposed RSPT.
The most sensible strategy for Gillard is to preserve a nominal RSPT and achieve a real outcome that will be seen by both miners and the public as a fair deal and a tax reform.
I would argue that a deal with miner along the line of PRRT taking into account of existing state royalties and exempt existing mining production if minerals price is not higher than current levels, possible in terms relative some measure. If the minerals price goes further higher, then tax only that part of the existing production.
That will be simple and fair to both miners and the public.
Forget that proposed revenue and rebalance the budget using other means. If surplus cannot be achieved as budgeted, then delay for a year to achieve that. Making a sensible retreat will not be seen as a broken promise because of changed circumstances as the RSPT is modified and real progress made under her leadership.
I think Gillard is right in being open to negotiation with miners and not being bonded to the $12 billion revenue from the proposed RSPT.
The most sensible strategy for Gillard is to preserve a nominal RSPT and achieve a real outcome that will be seen by both miners and the public as a fair deal and a tax reform.
I would argue that a deal with miner along the line of PRRT taking into account of existing state royalties and exempt existing mining production if minerals price is not higher than current levels, possible in terms relative some measure. If the minerals price goes further higher, then tax only that part of the existing production.
That will be simple and fair to both miners and the public.
Forget that proposed revenue and rebalance the budget using other means. If surplus cannot be achieved as budgeted, then delay for a year to achieve that. Making a sensible retreat will not be seen as a broken promise because of changed circumstances as the RSPT is modified and real progress made under her leadership.
Rebalance the budget shouldn't be difficult
Comments on Michael Stutchbury “True grit needed to balance budget”, 25/06/2010, http://www.theaustralian.com.au/business/opinion/true-grit-needed-to-balance-budget/story-e6frg9p6-1225884048738
The two issues are closely related and the solution to both lies in an overhaul and redesign of the RSPT similar to the PRRT taking into account of State royalties and a rebalance of budget through other savings, such as the potential savings from a smaller and more focused and more efficient federal public bureaucrats, as proposed by the opposition.
The big problem, though, is that Swan, the designer of the current RSPT, is still the Treasurer who is responsible for negotiations with miners on RSPT.
He should have step aside from the Treasury portfolio and move to another one like to finance, employment or education with the hat of the deputy prime minister on.
That is, a seemingly promotion to get him away from Treasury.
He is unlikely to be a good Treasurer after the RSPT debacle.
On the new PM, she does need to move away a bit from her past approach to industrial relations and pay more attention to market efficiency and productivity. That is for sure.
The two issues are closely related and the solution to both lies in an overhaul and redesign of the RSPT similar to the PRRT taking into account of State royalties and a rebalance of budget through other savings, such as the potential savings from a smaller and more focused and more efficient federal public bureaucrats, as proposed by the opposition.
The big problem, though, is that Swan, the designer of the current RSPT, is still the Treasurer who is responsible for negotiations with miners on RSPT.
He should have step aside from the Treasury portfolio and move to another one like to finance, employment or education with the hat of the deputy prime minister on.
That is, a seemingly promotion to get him away from Treasury.
He is unlikely to be a good Treasurer after the RSPT debacle.
On the new PM, she does need to move away a bit from her past approach to industrial relations and pay more attention to market efficiency and productivity. That is for sure.
2010-06-24
Gillard can address challenges
Comments on Paul Kelly “Labor leadership change rewrites rulebook”, 24/06/2010, http://www.theaustralian.com.au/news/opinion/labor-leadership-change-rewrites-rulebook/story-e6frg74x-1225883864100
I think two of the three challenges Paul Kelly listed, i.e. "the ETS retreat, the boatpeople dilemma and the war with the miners over the resources tax", can be handled by Gillard without much difficulty.
The ETS can be transformed to a low carbon levy/tax and then the proceeds be distributed to every resident in Australia equally to keep revenue neutral and return the proceeds to the public.
The boatpeople dilemma, is a relatively tricky issue, though it could be dealt with by announcing a new policy initiatives that indicates that Australia only accept the number of refugees each year in proportion to its share of population in the world.
Australia should encourage refugees to be distributed and accepted by all countries, including developing countries, but the rich countries can make some contributions to poor countries for their acceptance of refugees for a designated period for a refugee accepted.
In that way, it is more likely to deter some economic migrants seeking improvement in living standard in the name of refugees.
Perhaps Australia could negotiate and reach agreements with countries in the Asia Pacific regions.
By having this explicit policy for refugees, Australia sends a message that it will treat refugees humanely but will not be a heaven for refugees to come. Most, if they come, will be settled in possibly developing countries.
The resources tax should be largely abandoned or completely redesigned to mirror the PRRT. The only matter is to rebalance the budget in the out years.
I think two of the three challenges Paul Kelly listed, i.e. "the ETS retreat, the boatpeople dilemma and the war with the miners over the resources tax", can be handled by Gillard without much difficulty.
The ETS can be transformed to a low carbon levy/tax and then the proceeds be distributed to every resident in Australia equally to keep revenue neutral and return the proceeds to the public.
The boatpeople dilemma, is a relatively tricky issue, though it could be dealt with by announcing a new policy initiatives that indicates that Australia only accept the number of refugees each year in proportion to its share of population in the world.
Australia should encourage refugees to be distributed and accepted by all countries, including developing countries, but the rich countries can make some contributions to poor countries for their acceptance of refugees for a designated period for a refugee accepted.
In that way, it is more likely to deter some economic migrants seeking improvement in living standard in the name of refugees.
Perhaps Australia could negotiate and reach agreements with countries in the Asia Pacific regions.
By having this explicit policy for refugees, Australia sends a message that it will treat refugees humanely but will not be a heaven for refugees to come. Most, if they come, will be settled in possibly developing countries.
The resources tax should be largely abandoned or completely redesigned to mirror the PRRT. The only matter is to rebalance the budget in the out years.
RSPT faulties reflects those in Henry Review
Comments on Karen Maley “Gillard's RSPT minefield”, 24/06/2010, http://www.businessspectator.com.au/bs.nsf/Article/Gillard-RSPT-Resources-Maley-pd20100624-6Q9JC?OpenDocument&src=sph
It is not just the design of the RSPT that is seriously flawed but also the whole Henry Review that needs to be studied carefully.
For example, while raising the tax free threshold level for personal income tax, the review recommends a land tax of nearly all land use including principal residences for which there are many low income households would be taxed.
The two are fundamentally inconsistent and contradictory.
Yes, it might broaden the base of land tax, but just imagine that some pensioners who don't have much income to pay the land tax for their own homes. What would the government want to do with those who cannot afford that land tax? What kind of distortions that would produce for people’s lives?
Is that a good tax design? Definitely NO.
That is no more than another amateur design of a tax system.
It is not just the design of the RSPT that is seriously flawed but also the whole Henry Review that needs to be studied carefully.
For example, while raising the tax free threshold level for personal income tax, the review recommends a land tax of nearly all land use including principal residences for which there are many low income households would be taxed.
The two are fundamentally inconsistent and contradictory.
Yes, it might broaden the base of land tax, but just imagine that some pensioners who don't have much income to pay the land tax for their own homes. What would the government want to do with those who cannot afford that land tax? What kind of distortions that would produce for people’s lives?
Is that a good tax design? Definitely NO.
That is no more than another amateur design of a tax system.
RSPT must be abandoned or completely rewritten
Comments on Mike Mangan “That's it – the RSPT is dead”, 24/06/2010, http://www.businessspectator.com.au/bs.nsf/Article/Thats-it--the-RSPT-is-dead-pd20100624-6PTN8?OpenDocument&src=sph
Agree completely.
RSPT must be dead because it is so flawed and based on unrealistic and false assumptions and wrong and distorted modelling results even people with no modelling experience but with common sense can sense the results are wrong or manufactured to suit political needs.
Gillard also needs to make a quick and calculated move on climate change policy.
Once those two are done, she should be ready to fight and win the election.
Agree completely.
RSPT must be dead because it is so flawed and based on unrealistic and false assumptions and wrong and distorted modelling results even people with no modelling experience but with common sense can sense the results are wrong or manufactured to suit political needs.
Gillard also needs to make a quick and calculated move on climate change policy.
Once those two are done, she should be ready to fight and win the election.
2010-06-19
Redesign resources taxes
Comments on Michael Stutchbury “Quick truce unlikely in resource tax war”, 19/06/2010, http://www.theaustralian.com.au/news/opinion/quick-truce-unlikely-in-resource-tax-war/story-e6frg6zo-1225881544801
The government has to abandon the RSPT at the current form and break the link between the planned RSPT revenue and surplus in 3 years time.
It can find savings from reducing public service expenditure just as the opposition proposed.
There is no point in making some cosmetic changes to a fundamentally flawed tax design.
It needs to redesign the resources tax from scratch. It needs to clearly define super profits for the resources industry and tax on those super profits. It needs to exempt the existing operations, but with an extra super profits provision to tax future extra super profits if minerals prices go up further.
It does not need to treat different minerals differently, if the super profits are properly and clearly defined because low value quarries don’t have super profits.
The government has to abandon the RSPT at the current form and break the link between the planned RSPT revenue and surplus in 3 years time.
It can find savings from reducing public service expenditure just as the opposition proposed.
There is no point in making some cosmetic changes to a fundamentally flawed tax design.
It needs to redesign the resources tax from scratch. It needs to clearly define super profits for the resources industry and tax on those super profits. It needs to exempt the existing operations, but with an extra super profits provision to tax future extra super profits if minerals prices go up further.
It does not need to treat different minerals differently, if the super profits are properly and clearly defined because low value quarries don’t have super profits.
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.
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.
2010-06-17
Munif Mohammed's ROCE illustration contributes little to RSPT debate
Comments on Munif Mohammed “The tax is a matter of ROCE”, 17/06/2010, http://www.businessspectator.com.au/bs.nsf/Article/RSPT-ROCE-effective-tax-rate-pd20100617-6FUUB?OpenDocument&src=sph
I am not sure this piece isn't more misleading, in the sense that the impact on the real return to the equity investors can be more pronounced after the RSPT and interest payments to lenders, because the RSPT is based on pre-interest payments earnings?
Besides, what the author shows is no more or less than the effects of the 6% RSPT free effect. The limit (of the trend shown in that graph) is clearly 40%, as the headline of the tax indicates.
One is left with what this piece really contributes to the debate.
It seems only more confusion being produced or generated by it.
A flawed tax is a flawed tax. There is no point to "make-up" it to look good.
I am not sure this piece isn't more misleading, in the sense that the impact on the real return to the equity investors can be more pronounced after the RSPT and interest payments to lenders, because the RSPT is based on pre-interest payments earnings?
Besides, what the author shows is no more or less than the effects of the 6% RSPT free effect. The limit (of the trend shown in that graph) is clearly 40%, as the headline of the tax indicates.
One is left with what this piece really contributes to the debate.
It seems only more confusion being produced or generated by it.
A flawed tax is a flawed tax. There is no point to "make-up" it to look good.
2010-06-16
How to fix the government's proposed RSPT?
There is report that the Rudd government may consider changes to its proposed RSPT. See Dennis Shanahan and Matthew Franklin "Kevin Rudd starts to budge on mine tax", 16/06/2010, http://www.theaustralian.com.au/politics/kevin-rudd-starts-to-budge-on-mine-tax/story-e6frgczf-1225880140102
The report says that "THE Rudd government is considering modifying the resource super-profits tax for the burgeoning coal-seam gas industry and changing the rules on the 40 per cent tax for different minerals - the first sign of compromise in its damaging battle with miners."
A number of broad principles should be adopted to fix the RSPT.
1. Abandon the idea of being an equity partner with mining companies, irrespective the level of partnership. The tax should be a royalty, not a return to equity.
2. Raise the tax free threshold to adequately reflect risks of private capitals in the mining industry, that is, instead of risk free threshold, it should be risk adjsuted tax free threshold.
3. Exempt the existing mining production and already invested and planned investment, with a provision that if the mineral prices are higher relative to some benchmark, then tax on those higher prices.
4. Determine what rate to tax above the risk adjusted tax free threshold.
5. While different minerals should be treated in the same way in principle, low value mineral products should be exempt from the tax. Alternatively, only in extremely rare cases where it is very clear to identify that the risks to private capital are different, a different risk adjustment be applied.
PS: I have developed another idea that may look better than any of the current resources tax proposals or other ideas, see http://mrlincolns.blogspot.com/2010/06/true-super-profits-tax-on-mineral.html
The report says that "THE Rudd government is considering modifying the resource super-profits tax for the burgeoning coal-seam gas industry and changing the rules on the 40 per cent tax for different minerals - the first sign of compromise in its damaging battle with miners."
A number of broad principles should be adopted to fix the RSPT.
1. Abandon the idea of being an equity partner with mining companies, irrespective the level of partnership. The tax should be a royalty, not a return to equity.
2. Raise the tax free threshold to adequately reflect risks of private capitals in the mining industry, that is, instead of risk free threshold, it should be risk adjsuted tax free threshold.
3. Exempt the existing mining production and already invested and planned investment, with a provision that if the mineral prices are higher relative to some benchmark, then tax on those higher prices.
4. Determine what rate to tax above the risk adjusted tax free threshold.
5. While different minerals should be treated in the same way in principle, low value mineral products should be exempt from the tax. Alternatively, only in extremely rare cases where it is very clear to identify that the risks to private capital are different, a different risk adjustment be applied.
PS: I have developed another idea that may look better than any of the current resources tax proposals or other ideas, see http://mrlincolns.blogspot.com/2010/06/true-super-profits-tax-on-mineral.html
2010-06-12
Dump the Treasurer and the RSPT and change tactics
Comments on Paul Kelly “Cornered by his own trap”, 12/06/2010, http://www.theaustralian.com.au/news/opinion/cornered-by-his-own-trap/story-e6frg6zo-1225878635983
The only feasible way solution is to acknowledge that the announced RSPT is flawed and attribute the flaws to its designer, the Henry tax review to distance the government from it or at least to create an acceptable excuse for the government, so it can have some room to manoeuvre and turn its political fortune around.
Either the PM, or the Treasurer should take full responsibility for that, although it is more likely that the Treasurer should, give that the RSPT has been the product of his department.
Then the next step is to replace the RSPT with a similar PRRT and call it MRRT that exempts all existing mining production.
Some other details such as the relationship between the existing state royalties and the federal MRRT can be worked out in negotiations over the next months.
In the media and longer run, the PM needs to change his style of leadership and replace his key advisors.
He needs to be more trustful to other cabinet colleagues. The over centralisation and control freak never work well on very broad tasks like the running a country.
He needs to have more practical advisors with workable policies and policy solutions. The idea to have people work dog years is never to be admired or adopted.
Failing to do that, he has no options by to pass the leadership to another person after the next election.
The only feasible way solution is to acknowledge that the announced RSPT is flawed and attribute the flaws to its designer, the Henry tax review to distance the government from it or at least to create an acceptable excuse for the government, so it can have some room to manoeuvre and turn its political fortune around.
Either the PM, or the Treasurer should take full responsibility for that, although it is more likely that the Treasurer should, give that the RSPT has been the product of his department.
Then the next step is to replace the RSPT with a similar PRRT and call it MRRT that exempts all existing mining production.
Some other details such as the relationship between the existing state royalties and the federal MRRT can be worked out in negotiations over the next months.
In the media and longer run, the PM needs to change his style of leadership and replace his key advisors.
He needs to be more trustful to other cabinet colleagues. The over centralisation and control freak never work well on very broad tasks like the running a country.
He needs to have more practical advisors with workable policies and policy solutions. The idea to have people work dog years is never to be admired or adopted.
Failing to do that, he has no options by to pass the leadership to another person after the next election.
2010-06-07
The RSPT and Brown tax - what are the rationales as a rent tax?
Comments on Ben Smith “Government should pay up front for its share of mining companies' costs”, 7/06/2010, http://www.theaustralian.com.au/news/opinion/government-should-pay-up-front-for-its-share-of-mining-companies-costs/story-e6frg6zo-1225876178390
While the rational and its niceties of a Brown tax may be very clear to some economists, it is unlikely to be so for most people.
Now let's leave the government's proposed RSPT aside and focus completely on the Brown tax argument.
If that is good as it can get as claimed, then why 40%, not any other percent, say 80%, or 10%?
The partner approach of the Brown tax makes the rent argument superfluously unnecessary.
So, in the end, is it a rent tax, or tax, or purely return to a compulsory business partner?
PS: Ben Smith is among the 20 leading economists who made an open statement in support the government's RSPT. It is unclear what relationship of this post to that statement to me now.
PPS: I should point out that Ben was one of my supervisors to my PhD study at the ANU in early 1990s, so I know him well and respect him very much.
While the rational and its niceties of a Brown tax may be very clear to some economists, it is unlikely to be so for most people.
Now let's leave the government's proposed RSPT aside and focus completely on the Brown tax argument.
If that is good as it can get as claimed, then why 40%, not any other percent, say 80%, or 10%?
The partner approach of the Brown tax makes the rent argument superfluously unnecessary.
So, in the end, is it a rent tax, or tax, or purely return to a compulsory business partner?
PS: Ben Smith is among the 20 leading economists who made an open statement in support the government's RSPT. It is unclear what relationship of this post to that statement to me now.
PPS: I should point out that Ben was one of my supervisors to my PhD study at the ANU in early 1990s, so I know him well and respect him very much.
2010-06-04
No super profits for current shareholders of public companies
Second comments on Henry Ergas “Going retro with cash grab”, 4/06/2010, http://www.theaustralian.com.au/news/opinion/going-retro-with-cash-grab/story-e6frg6zo-1225875235219
The super profit assumption, premise or thesis is based on pure fantasy in the environment of modern public mining companies.
The public nature of most mining companies and stock market trading means there are no super profits for any publically traded companies.
This is totally different from a private company where the original investments are still there and enjoy either lower or higher than normal profits.
But large mining operations are mostly public companies and the current shareholders don't have those sorts of returns related to private companies.
It is that simple and it is a puzzle why Treasury people could not figure that fact and logic out.
The super profit assumption, premise or thesis is based on pure fantasy in the environment of modern public mining companies.
The public nature of most mining companies and stock market trading means there are no super profits for any publically traded companies.
This is totally different from a private company where the original investments are still there and enjoy either lower or higher than normal profits.
But large mining operations are mostly public companies and the current shareholders don't have those sorts of returns related to private companies.
It is that simple and it is a puzzle why Treasury people could not figure that fact and logic out.
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