Kevin Rudd was back on TV talking about the RSPT last night.
Number one, why did we originally call it a resource super profit tax? Because it was designed to tax super profits. In other words, we understand acutely I come from the mining State of Queensland – that these are massively capital intensive projects and they therefore require long lead times. But if you get to a point where you are generating sustained super profits then it’s right for the people to say we want a larger slice of that action. That’s what the argument was about.
He has obviously learned his line since May 2010 when the tax was first introduced. When asked on 6PR what a super profit was Rudd offered this explanation:
A super profit will be defined as if you’ve got a company … [that's] investing a certain amount of money what you then do do is deduct their expenses.
What you then do do also is deduct further the amount which would be collected if for example they were investing their funds in long-term bond markets. In other words what would constitute a reasonable rate of return on investment.
On his second attempt Rudd offered
Which is you have the total investment of the company, the total earnings of the company, you deduct their expenses.
And then of course you look at what would be a normal rate of return for that company if it were investing its money elsewhere, and it’s only if they go in excess of that is a super profit tax imposed.
On the third attempt
It is calculated on the basis of a company in terms of first of all, their total level of investment, secondly the revenues they earn in a given year, thirdly you remove the expenses that they generate in a given year, fourthly you then take into account what that company would otherwise earn if they were putting their money, for example, into an investment on the long term bond market, and it’s only if they are profitable using that formula, and earning super profits, that you would impose this… tax.
It’s not foreign, for example, to all those folk who are currently operating up there on the Northwest Shelf, the Petroleum Resource Rent Tax has operated for the last 20 years and on that basis huge projects, like the Gorgon project, have come into being.
Mind you on Q & A he didn’t say what a super-profit was, just that it was meant to be taxed. In emails that were released under FOI legislation a Treasury official is quoted as saying:
Expressions like “tax is payable only after providing a normal return to shareholders” are best avoided.
So the obvious questions are; does Kevin Rudd now know what a super-profit is, and does he still believe that normal profits are equal to the long-term government bond rate?