The MRRT is now being addressed in a Senate Committee. Julie Novak and I put in a submission. I fronted the Committee yesterday, drawing from the following remarks.
Australian resource development, harnessed to the booming Asian economies, has been behind our comparative economic success.
Because of advantages like certainty of ownership, low levels of corruption and of crime, absence of worrying internal schisms and predictable levels of taxation, Australia accounts for around 12 per cent of exploration. But the 12 per cent share also demonstrates that there are plenty of alternative mining investment destinations.
The Australian mining industry’s annual return on capital from 1973 to 2009 was 14.7 per cent, somewhat higher than the all industry average of 13.6 per cent. Two decades ago, however, the mining industry’s long term return on capital was 11.7 per cent, considerably below the all industries average. Mining could again experience low profit levels.
Including royalty payments, mining pays higher levels of tax than other industries – over 40 per cent of net income compared to the average of 27 per cent.
And though Australia’s current taxation rates are similar to those in the US and Brazil, they are somewhat higher than in other competitors like South Africa, Russia and Canada.
The RSPT pushed Australian tax rates to levels 50 per cent above those of the US and even more than this compared with other competitive producers, like South Africa
The RSPT was estimated to collect some $9 billion a year and MRRT is said to raise $3.7- 4 billion from the iron ore and coal mining sectors. The additional cost disadvantage on these sectors is amplified by the carbon tax which none of our competitors will introduce.
In justifying special taxes on minerals, much has been made of two related features that:
- the taxes would capture economic rents; and
- they constitute a return to the owners of the resources who are the Australian people
It is rare for a firm to earn genuine economic rents. A firm might earn very high profits by uncovering a valuable mineral deposit. But taxing these so-called “quasi-rents” causes adverse secondary effects. Punitive taxes on them may have little effect on the mine itself but would deter future activity levels as the higher impost is factored into investors’ plans.
A resource rent tax therefore involves taxing unfound resources in the ground and it would be like taxing new technology before it is invented. A country doing that would see the assembled skills relocate. The experience of planned increased levels of taxation in South Africa, Mongolia, and different Canadian provinces, where higher taxes led to marked reductions in exploration activity, demonstrates the footloose nature of exploration expenditure.
Though resources may be owned by the Australian people, for all practical purposes, mineral deposits only exist if someone discovers them. A special tax on them will seriously dampen the search for the hidden wealth they represent.
The only case for taxation considerably in excess of the general rate is where prior discoveries in an area have already revealed considerable information about its prospectivity. The information thus revealed increases the value of the area and, arguably, that increased value should accrue to the people as a whole. The best approach then might be to ration development by inviting exploration and development bids.
Curiously, the Government has said the new MRRT, despite disturbing a hitherto relatively stable taxation environment, will “provide certainty”. The contrary effect is compounded by:
- ambiguity over which level of government holds the rights to royalty type revenues and the possibility of competitive enactments of taxes that markedly increase overall rates.
- Because there is a phase-in of the tax to exclude businesses earning profits of $75-125 million it will cause artificial and inefficient changes in corporate structures as firms seek to avoid its payment.
The MRRT discriminates against the mining industry and specifically against certain sectors of the mining industry in the hope of raising around $4 billion a year. But it imposes a massive risk of throttling an industry that has been the key to the present living standards of all Australians.
Even though Senator Cameron, the ALP chief headkicker, was absent (campaigning for his beloved Rudd) there were the usual lively exchanges that IPA appearences generate.
I understand that the States actually own the minerals not the feral gubment?
dakingisdead
22 Feb 12 at 3:33 pm
I actually have no problems with States increasing royalties but should be on new projects as a rule and maybe a guarantee of the royalties rate for 20 years like is being done in many African countries. I do have a major problem with the Federal government effectively profiteering from any industry only to transfer revenue to other states in this case from northern states to southern states giving subsidies for car industry etc. As 10 years ago banks were going gang busters and this is based mostly in NSW us QLDers should have got some cash out of them if that is the way it is supposed to be done. The whole system should be overhauled with Federalism returning to it’s proper role and transfers being to states on per capita basis only and no joint infrastructure projects as the states are big enough to do that.
kelly liddle
22 Feb 12 at 3:47 pm
What da king said. The states own the resources, not ‘the Australian People’.
Bloody southerners trying to steal our monies.
Entropy
22 Feb 12 at 4:01 pm
Who own the resources is irrelevant and a red herring.
It is the commonwealth that can tax profits and that is what they are proposing to do.
One of the major reasons Warwick McKibbin liked the original proposal was that it would offset part of the impact commodities would have on the economy.
That is why his major criticism was the policies funded by the tax.
On your Marx
22 Feb 12 at 4:08 pm
umm No it isn’t.
Depends on the nexus between what the states can do and what the Federal government is attempting to do. We’ll let the High court decide that one, as that’s where it’s going to end up.
Warwick’s proposal was never meant specifically that the commonwealth government raise a profits based tax.
Toilet paper, homer. Now please!
JC
22 Feb 12 at 4:21 pm
No of course not that is why he was calling it a super-profits tax. That is why he wanted it to nullify somewhat the rise in income that the commodity boom would give us.
Do you ever think before writing?
Both the previous proposal and the current proposal taxes profits.
On your Marx
22 Feb 12 at 4:37 pm
Incomes policies were dead buried and cremated in the late 1970s.
.
22 Feb 12 at 4:42 pm
are you sure you’re not confusing Warwick’s opinion with your own here, checkout chick?
jtfsoon
22 Feb 12 at 4:45 pm
On your Marx
Get set go!
sean
22 Feb 12 at 4:47 pm
“Incomes policies were dead buried and cremated in the late 1970s.”
The mining super profits tax came from this era so nothing from then is dead and buried. If only Labor was in power in the 50s and we would have had an agricultural super profits tax on wool.
kelly liddle
22 Feb 12 at 4:48 pm
Shane Wand could call it the Score’s Men’s Entertainment Lounge Tax too, you fucking idiot. Who cares what its called.
What matters is the nexus between the tax and the state levy system. His behavior, threatening WA if it raised it’s levy suggests the High Court would have a good reason to look at it.
Look Homer, you’re not a lawyer (thank god) and now not even an economist. You’re a simple man doing an honest day’s work filling shelves at Woolies, so I suggest you stay out of this and let the High court have its say, as no doubt it will need to end up there sooner rather than later.
You ought to be nullified, you idiot. Spread your propaganda elsewhere, Mr Skank.
Lol
Yea and?… your point is what exactly with this small sentence, you moron?
JC
22 Feb 12 at 4:48 pm
Some advice homes:
Homer, you really need to focus on the job. You shouldn’t be talking about this shit on blogs during working hours as you’re going to seriously piss off the duty manager and he’ll end up firing you.
Stop thinking you’re too good to be filling shelves as that’s entirely the wrong attitude to have, especially when there’s not much to go to really hit bottom.
And Dude, at 20 bucks an hour… for you… you really ought to be doing cart wheels, as you’re not going to be earning more…. even in a boom.
JC
22 Feb 12 at 4:54 pm
On your Marx
The Commonwealth can tax but it is wise to do so at a consistent rate for all sectors otherwise it is winner picking or placing a particularly severe impost on the more succesful firms. Progressive taxation rates are barely logical for personal income tax and make no sense for firms, the benficiaries of which are not necessarily the rich.
If you tax a firm’s super profits then you should refund it if losses occur (along the lines of a Brown Tax). This still is likely to penalise success especially as nobody would believe a government would keep its side of the bargain
Alan Moran
22 Feb 12 at 4:57 pm
I totally agree Mr Moran.
I do not know why some-one would bring up incomes poicies as they were not spoken about. what was talked about was National income. It is an entirely different issue
Possibly the person is confused as he doesn’t understand the difference.
Mr JC,
you really should read before you write. Better still perhaps leave it for a topic you might know something about.
Mr Soon ,
He wanted all monies from such a tax to go into a sovereign wealth fund
On your Marx
22 Feb 12 at 5:14 pm
So Homer, you think we have too much GDP?
.
22 Feb 12 at 5:19 pm
Answer the god-damn question Homer.
.
22 Feb 12 at 10:04 pm
Homer,
I know you’re on night fill at the moment, so either:
Do you oppose higher wages, or;
higher GDP?
You have scoffed at the first suggestion. I can only assume you oppose growth of GDP.
.
22 Feb 12 at 11:04 pm
Homer,
Answer the God-damned question.
There will be non filibustering on this site.
Do you oppose higher wages, or;
higher GDP?
You have scoffed at the first suggestion. I can only assume you oppose growth of GDP.
.
23 Feb 12 at 8:00 am
You clearly have no idea of what commodity boom mark2 could be like.
read this..
On your Marx
23 Feb 12 at 8:55 am
you’re worried about a commodity boom?? Now???
have you been sniffing too much of whatever chemicals they use in aisle clean ups, Homer?
jtfsoon
23 Feb 12 at 9:02 am
Also Homer I can’t help but think that you’re Toozing Warwick. I think he has written that a SWF might be useful in preventing government from squandering revenues it collects in boom times. This is rather different from what you are implying
jtfsoon
23 Feb 12 at 9:14 am
Neither does that political hack, Ken Henry.
Answer the question Homer.
Do you oppose higher wages, or;
higher GDP?
You have scoffed at the first suggestion. I can only assume you oppose growth of GDP.
Why, as a retiree with no debt and access to imports do you oppose higher levels of GDP?
.
23 Feb 12 at 9:15 am
I’m having a de ja vu. I remember Homer making the same argument, that we must reduce national income to save ourselves from this terrible, prosperity creating minerals boom.
Since he is retired, this amounts to a wages policy.
So he’s basically doubly lying about this.
.
23 Feb 12 at 9:21 am
Good to know Mr Soon you think.
You collect revenue from a ‘super-profits’ tax. It does indeed go into a sovereign Wealth fund.
What does it do in terms of the Gregory thesis?
You need to think some more!
No commodity boom little super-profits and little gregory effect as well.
On your Marx
23 Feb 12 at 10:00 am
The Gregory thesis is a discredited crank theory. Shut up you clown, you want to impoverish the younger workers to make your imports cheaper and keep the labour supply in Sydney to pump up your assets.
You’re a sickening, snivelling subsidy whore.
.
23 Feb 12 at 10:56 am
You responses and attitude is shameful, Homer Paxton. As is your misappropriation of economic research.
.
23 Feb 12 at 12:27 pm
Not only do you not know who I am you have no idea of the topic.
Read Ken Henry’s speech and get educated.
mind you a person who believes real rates fell under deflation in the US in 2008 would need a lot of education.
no the Gregory thesis is being played out now if you had the eyes to look.
On your Marx
23 Feb 12 at 12:51 pm
No you are lying. I am correct, and you got the year wrong.
Rubbish, we’re impoverished by ever growing Government departments with zero real economic output. Productivity puzzle solved.
You cannot even answer the questions Homer. You are an envious, ill educated subsidy whore.
.
23 Feb 12 at 12:57 pm
well go on then show us all the nominal rates that were negative.
In the short time I have had the problem of knowing you , you have made many assertions but never provided any evidence.
you make a lot of accusations.
Psychologists cal it projection.
Try and read Ken Henry’s paper.
Try and understand what he is saying.
It goes a long way to explaining such a tax.
The greater the impact of a commodity boom, the more the revenue and vica versa.
On your Marx
23 Feb 12 at 2:08 pm
Anyone who understands the mining boom knows it is long term. LNG contracts are for 25-30 years and the main construction work on the trains isn’t completed yet.
This is nothing like the 1950s or 1970s booms. Firstly, this has already gone on for almost six years now.
Even if the Gregory thesis was valid it isn’t comparable.
You just want the rules of the game stacked in your favour.
.
23 Feb 12 at 2:21 pm
Homer
Just stop lying and there is a clean up on aisle 3.
.
23 Feb 12 at 3:06 pm
Not before he stacks the toilet paper in aisle 8. What your turn Dot.
JC
23 Feb 12 at 3:09 pm
Homer:
Your so 70′s. You’re actually taking the Gregory thesis out of the dusty box? lol… you’re in a time warp you loon.
I bet you wear bell bottoms.
JC
23 Feb 12 at 3:12 pm
The Gregory thesis was not about any boom in the 50s or 70′s.
Read Henry’s speech and you wil get a better picture of what may happen under a strong commodities boom.
At present you lack understanding.
You claimed real rates increased when there was deflation.
I do not expect you to understand this but the only way for real rates to fall under deflation is for nominal rates to be negative!
Under deflation real rates actually rise. This means monetary policy is impaired, in a depression it is useless until inflation comes back.
On your Marx
23 Feb 12 at 3:50 pm
“I think this is a big turning point for us,” says one of the leading experts on the effects of minerals booms, Bob Gregory, a professor of economics at the Australian National University and former member of the Reserve board. “When I look at our history I see three things – the Korean War wool boom of the early 1950s, the 1973-74 terms-of-trade shock, and now.”
I disagree with Gregory now but clearly you are full of shit Homer.
I’m no arguing with theory with respect to rates. I’m telling you what happened. The Fisher equation thus breaks down under conditions of QE. Which is fairly obvious.
You irredeemable reprobate, you lied about what interest rate I was talking about. You verballed Gregory.
You’re like a walking disaster.
.
23 Feb 12 at 4:49 pm
Let the record show that Homer “Walking Fucking Disaster Area” Paxton has been bested once again.
.
23 Feb 12 at 10:03 pm
The trouble with the MRRT, royalties and future gas projects is that Julia and Bob have already spent the projected profits! Mind you the state governments and local governments are no better.
Gowest
24 Feb 12 at 1:02 am
I concur Gowest. the MRRT is really the SBRT, the Swannie Budget Repairing Tax.
Let the record show once again that Homer “Walking Fucking Disaster Area” Paxton has been bested once again.
.
24 Feb 12 at 7:39 am
Oh dear,
the Gregory thesis was written in the Journal of Agricultural Economics.
If you wish to read it here it is but it will prove too hard for you..
Gregory, R. G. (1976), ‘Some implications of the growth of the mineral sector’, Australian Journal of Agricultural Economics 20, 71-91.
Research still up to the highest standard here I see.
you said
‘You are such a dope. The US experienced deflation AND negative real interest rates during 2009.’
this is closest to the silliest statement ever made, it was made without evidence ( because there was none) and was impossible.
some-one has been lying and it hasn’t been me.
I agree the MRRT is not the best policy but it is better than nothing.
On your Marx
24 Feb 12 at 8:38 am
Ah Homer, still telling Gregory what his own theory is about?
“I think this is a big turning point for us,” says one of the leading experts on the effects of minerals booms, Bob Gregory, a professor of economics at the Australian National University and former member of the Reserve board. “When I look at our history I see three things – the Korean War wool boom of the early 1950s, the 1973-74 terms-of-trade shock, and now.”
I disagree with Gregory now but clearly you are full of shit Homer.
No Homer. You have been consistently lying about this, you even lied twice about what I was claiming.
Clean up on aisle three.
Let the record show once again that Homer “Walking Fucking Disaster Area” Paxton has been bested once again.
.
24 Feb 12 at 8:46 am
http://www.nytimes.com/2009/04/19/business/economy/19view.html
You are such a dumbarse Homer. You mental midget.
.
24 Feb 12 at 8:49 am
This of course actually resulted in deflation. The US deflation (inflation) rate was 0.38% (-0.38%) 2.1% (-2.1%) in July 2009. If you are inflating at a zero nominal rate, you have negative real rates.
(It was only in January and August that M1 dropped).
Why you cannot accept the facts that the Fisher relationships break down under QE is beyond me. Supply and demand are not working normally here.
The adjustment is made on the balance sheet. Incomes are depreciated. The value of savings is reduced.
.
24 Feb 12 at 9:08 am
I meant in March and in July for deflation.
.
24 Feb 12 at 9:11 am
You are an ill informed ,ill mannered, foul mouthed boor. I am having nothing more to do with you.
You are not quoting from his paper at all as anyone who has read a journal paper would know.
Only a person who has had no university experience at all would make such a claim or imply it.
The paper was a theoretical construct of what may happened with a terms of trade shock.
The last word on deflation.
in 2009 The US experienced deflation. as I noted at the time real rates rise in those circumstances ( making monetary policy very hard sometimes impossible to utilise). BUT there was disagreement it was said in 2009 the US had both deflation and lower real rates. This was such a silly statement because they could happened at the same time.
Indeed it was such a silly statement that it is being miraculously reinvented as to saying something else.
I might add it is typical of some-one who has been caught out badly.
On your Marx
24 Feb 12 at 9:44 am
I am quoting the man himself.
Um…okay Homey. Most people don’t say their MBA is a qualification in economics, either.
But it did. I just showed you that.
.
24 Feb 12 at 9:46 am
Let the record show once again that Homer “Walking Fucking Disaster Area” Paxton has been bested once again.
.
24 Feb 12 at 11:51 am
Jeez, will Homer keep up with the research?
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1909318
An Examination of the Fisher Effect in the Euro Area
Stephen Piccinino
University of Malta
May 8, 2011
The Fisher hypothesis has been a hotly contested topic in monetary economics. Throughout the years it was extensively tested by numerous authors and using varying techniques. This paper seeks to investigate the existence of the Fisher effect in the Euro Area from 1999 to 2011, using the European interbank offered rate as a measure for interest rates, and the six-month maturing German Federal Securities as a measure of expected inflation. Through Augmented Dickey-Fuller tests, evidence is found of a cointegrating relationship, enabling the use of the Error Correction Mechanism and the examination of its coefficients. The test results indicate that the Fisher hypothesis held throughout the entire data set.
However, evidence could not be provided for a unitary relationship between the two variables for the September 2008 – March 2011 period.
The German Federal Securities’ capacity to serve as a proxy for inflation expectations throughout this period was questioned, as was EURIBOR’s behaviour throughout times of massive monetary injections. Parallels were also brought with prior literature showing how the Fisher effect came under strain during times of stringent monetary policy stances by the relevant authorities.
.
24 Feb 12 at 12:53 pm
What, you mean Homer is that your ridiculous arguments have been torn to shreds again and you can’t take the fact that you’re exposed as an imbecile.
Yes, in the 70′s when there was no concept of a floating exchange rate for Australia.
Garbage. Monetary policy is the only way deflation can be cured you raging lunatic.
Point being?
Remind us again, you were fired as a bond trader, right? Not surprised.
JC
24 Feb 12 at 12:58 pm