Last week Judith made the point
You can just imagine the scene – a few boffins with their honours degrees in economics, finance and maybe law working out the theoretical benefits of a resource rent tax over royalty arrangements based on production.
Straight from university to the Treasury, perhaps armed with some textbooks on advanced taxation theory, they work on a scheme in which any possible disincentives to invest are minimised and the government in effect become an equity partner with resource houses.
I can actually imagine the scene. I think this explains the problem the Rudd goverment is having with their RSPT. They don’t actually understand what they are doing – they don’t actually know the industry well enough to impose such an ‘elegant’ tax. The fact that the Australian could show that the arguments Rudd and Swan had made about the PRRT and the well-being of the industry were false are not deliberate lies, they are ignorance.
Barry Fitzgerald in The Age
THE Rudd government’s campaign in support of its proposed resource rent tax – and, by extension, its re-election – continues to be dogged by deceptions.
If it isn’t half-truths on just how much the industry has been paying in royalties and taxes, it has been the con that a lengthy consultation process is under way that will result in everyone agreeing the ”super” tax is the best thing since sliced bread.
Funny thing is, Garimpeiro does not think the government and its Treasury advisers actually know that they have been practising deceptions. It’s more a case of them not having an even basic understanding of the industry they are tinkering with in a big way.
Which is scarier? They do know what they are doing but are being misleading and deceptive to achieve a given goal. Let’s call that the Nobel Lie Hypothesis. They don’t know what they are doing and are making it up as they go; the Incompetence Hypothesis.
Update: Alan Kohler has a devastating critique.
Actually it should be called the Remote Shiny-arsed Penpushers Tax. It’s a tax designed by three economists and two public servants …
Ouch.
Dropped in to my tax person last Thursday to autograph my return for last year and he said the details of the proposed tax would create major problems for tax accountants, it was all over my head but clearly the details were not thought through. How surprising!
Rafe
17 May 10 at 8:46 am
Rafe,
I went to a KPMG thing a few days ago. They made the point that this would mean yet another set of books to keep – beyond the usual books for management, financial accounting and normal corporate tax as what is deductible and non-deductible is very different.
This one is a first – a tax that is deductible against tax.
.
Judith is right – they just do not understand the mining industry. I cannot claim to be an expert, but I know enough to see what is bound to happen. Exploration will tank within a year or so as the money runs out, meaning the existing mines will be depleated and there will be very few to replace them.
Andrew Reynolds
17 May 10 at 9:03 am
Another problem with a Brown tax per se is that I think it assumes normality of returns. I await comments from my social betters.
Semi Regular Libertarian
17 May 10 at 9:31 am
We know that the public service has grown by 20,000 since Rudd took office. Anyone got any figures on Treasury staffing numbers? Maybe they’ve added a whole division of numpties straight out of ANU with no experience, no idea and no idea that they have no idea?
boy on a bike
17 May 10 at 12:12 pm
It’s called the “What’s this button do?” school of economics.
Chris Poole
17 May 10 at 1:28 pm
[...] Catallaxyfiles in RSPT in la la land review a number of biting newspaper editorials on the Super Mining Tax, providing a possible answer [...]
Niche Modeling » Lessons from La-La Land
17 May 10 at 7:15 pm
I love Niche modeling. That guy took the CSRIO apart for lying about droughts etc.
Always worth a read.
JC
17 May 10 at 8:02 pm
Swan doesn’t know the difference between the weighted cost of capital and the long bond. And they laugh Barn Door? SwanDive is a total clown.
http://www.theaustralian.com.au/business/opinion/swan-doesnt-appreciate-the-impact-of-tax/story-e6frg9lx-1225866331341
Swan doesn’t appreciate the impact of tax
IT can’t really be that the federal Treasurer does not understand the fundamentals of capital management that drive large-scale commercial investment.
But that is one of the damning possibilities raised in an incendiary note from a senior Macquarie Private Wealth investment adviser.
The note, which was sent out late last week but is still finding its way around the boardrooms of global mining, claims that in a discussion with Macquarie analysts, Wayne Swan “apparently did not understand” a question that focused on the difference between the government bond rate and a company’s average weighted cost of capital.
“Apparently Wayne Swan thought that the long-term bond rate was a companies (sic) cost of capital,” the adviser reported.
The note reported that “a few Macquarie analysts attended a breakfast meeting with Wayne Swan” and one asked why the 40 per cent RSPT kicked in at the long-term bond rate rather than something closer the miner’s average weighted cost of capital, which would historically be nearer 10 per cent.
“Anyone who has studied finance knows that a company will not invest in a new project unless that project will generate a return on investment above the companies cost of capital,” the adviser wrote.
“Apparently Wayne Swan did not understand the question. Apparently Wayne Swan thought the long-term bond rate was a companies cost of capital.”
The Australian sought a reponse from Swan’s office, but has not received one.
And needless to say, Macquarie Group has run kilometres from the content of this note.
“Macquarie Private Wealth adviser in question made it clear in his note that he was expressing his own personal views and not those of the company,” the firm said.
“This is clearly the case.
“Macquarie re-reiterates that the views expressed in the note are not those of the Group and that partisan political views have no place in company research and analysis.” But what Macquarie has not done is to say publicly that its “senior investment adviser” misreported or misrepresented the content of the Treasurer’s conversation with its analysts.
JC
17 May 10 at 8:18 pm
Thanks JC. I just discovered Catallaxy Files and I’m really enjoying it. I have a paper coming out in July on the CSIRO work — basically saying that informing policy requires a higher standard of validation than found in academic models right now.
David Stockwell
17 May 10 at 8:21 pm
SwanDive is a total clown.
He’s been cut enough slack as a newbie. The fact is he’s both unprincipled and an amateur out of his league.
Michael Sutcliffe
17 May 10 at 8:33 pm
“He’s been cut enough slack as a newbie. The fact is he’s both unprincipled and an amateur out of his league.”
That maybe, but he knows at least as much about economics as the people that report on him such as Laurie “what should I write here, Kevin?” Oakes. Making it easy enough to pull one over them.
Rob W
17 May 10 at 9:18 pm
Not all of them Rob.
He got found out not know the difference between weighted cost of funds and the long bond rate.
People are reporting on it. The fact that Jabba doesn’t know much about it still makes him one of many.
JC
17 May 10 at 9:22 pm
Keating and Costello both had sparse education in economics – but they got by as they listened to experts. Swan has no education and doesn’t listen.
Semi Regular Libertarian
18 May 10 at 10:05 am