Note: Where available, the PDF/Word icon below is provided to view the complete and fully formatted document
[Group of 20 backing the proposed mining tax].



Download PDFDownload PDF

THE AUSTRALIA INSTITUTE â€ STATEMENT (FED)    The Australia Institute said the following economists (attached) support the  introduction of a resource rent tax to replace existing royalties. Although it  is appropriate to debate modifications to the design of the proposed Resource  Super Profits Tax (RSPT), the current public criticism of the proposed tax has  been dominated by misinformation. Mining is different to other industries in  that it uses and depletes natural resources, Some return on those resources  should flow to the Australian public. The existing royalty system reflects the  fact that it is desirable to levy a charge for access to publicly owned  mineral resources, in addition to normal corporate income tax.    146N1607    Total number of pages 2   

[The Australia Institute] [26 May 2010] [https://www.tai.org.au/index.php?q=node%2F19&pubid=757&act=display]

1

Statement

The following economists support the introduction of a resource rent tax to replace

existing royalties. Although it is appropriate to debate modifications to the design of

the proposed Resource Super Profits Tax (RSPT), the current public criticism of the

proposed tax has been dominated by misinformation.

Mining is different to other industries in that it uses and depletes natural resources,

Some return on those resources should flow to the Australian public. The existing

royalty system reflects the fact that it is desirable to levy a charge for access to

publicly owned mineral resources, in addition to normal corporate income tax.

 

There is no reason to expect a net contraction in mining over the longer term as a

result of replacing royalties with the proposed resource rent tax. This is because a

tax on economic rent of non-renewable resources is a more efficient way of raising

revenue than taxing mining production (royalties). 

 

Royalties tax production no matter how profitable. A resource rent tax only taxes

production when it is profitable and only after all costs have been deducted. If the

project does not make a profit, some of its costs are potentially refundable or

otherwise claimable. This means the Government shares the risk associated with

exploitation of our minerals resources. So, the proposed design for the RSPT

effectively only taxes those profits over and above the hurdle rate of return for a mine

(that is, its risk-adjusted cost of capital), after allowance is made for the proposed

40% rebate of the cost of developing each mine.

 

Given the Governmentʼs commitment to bearing some of the risk by refunding

losses, uplifting undeducted capital and losses by anything above a risk free rate

would create potential distortions. Any increase in the uplift rate would require a

corresponding modification of the risk shared with government. Any modifications in

the design of the RSPT should be underpinned with evidence about the relative

shares of returns for natural resources as well as returns on other factors of capital.

 

Moving from taxing mobile capital towards less mobile tax bases in this way is

consistent with economic theory and recent work of the OECD and IMF on the

application of economic principles to guide taxation policy.  Australia has a long

history of resource taxation and resource economics. The Petroleum Resource Rent

Tax that started almost 24 years ago only applies to some sites offshore and

represented a significant practical and conceptual advance in our thinking and tax

practice. Applying this principle more broadly to other minerals represents the next

measured but difficult step.

 

The RSPT will reduce the profitability of mining companies and the value of the

exploration and mining rights allocated to them by Australian governments on behalf

of the public. The current high profitability of these companies means that this is an

appropriate time for them to adjust to a more efficient and equitable system of

[Group of 20 backing the proposed mining tax]

2

sharing the value of those rights.

 

The RSPT has been criticised on the basis that revenues are dependent on cyclical

fluctuations in mining sector profitability. In reality, this is a substantial advantage of

this aspect of the tax. The counter-cyclical nature of tax revenues will help

to stabilise both the macro-economy and the level of activity of the mining sector.

 

Signed

Fred Argy AO, former director of the Economic Planning Advisory Council (EPAC)

Jeff Borland, Professor of Economics, University of Melbourne

Deborah Cobb-Clark, Director of the Melbourne Institute of Applied Economic and

Social Research and Ronald F Henderson Professor, University of Melbourne

Timothy Coelli, Professor of Economics, University of Queensland

Richard Denniss, Executive Director, The Australia Institute

Allan Fels AO, Dean, Australia and NZ School of Government

John Freebairn, Ritchie Chair of Economics, University of Melbourne

Quentin Grafton, Professor of Economics, Crawford School of Economics, Australian

National University

Nicholas Gruen, CEO Lateral Economics, Director of the Business Council of

Australiaʼs New Directions economic reform project from 1997 to 2000.

Ross Guest, Professor of Economics, Griffith University

Clive Hamilton, Professor of Public Ethics at Centre for Applied Philosophy and

Public Ethics and Vice-Chancellor's Chair, Charles Sturt University.

Michael Keating AC, former head of the Australian Public Service and Department of

Prime Minister and Cabinet

John Langmore, Professorial Fellow in the Political Science Department at the

University of Melbourne

John Mangan, Professor of Economics, University of Queensland

Flavio Menezes, Professor and Head of School of Economics, University of

Queensland

Christopher OʼDonnell, Professor and Deputy Head of School Economics, University

of Queensland

David Pannell, Federation Fellow in Agricultural and Resource Economics, University

of Western Australia

John Quiggin, Federation Fellow in Economics and Political Science, University of

Queensland

Prasada Rao, Australian Research Council Professorial Fellow, University of

Queensland

John Rolfe, Professor of Economics, Central Queensland University

Ben Smith, Associate Professor of Economics, Australian National University

David Throsby, Professor of Economics, Macquarie University