Nostalgia for the RSPT

I have an op-ed in The Australian this morning:

The MRRT experience has been so bad that there is now some nostalgia for the ill-fated resource super profit tax. Unlike the MRRT, we’re told, this tax had teeth and would have raised substantial revenue.

Yet this revisionist view of history invites us to believe that Treasury could accurately forecast revenue for a complex RSPT when it struggles with company tax and was disastrous on the MRRT.

The problem is the government has been too eager to accept the results of complex modelling at face value and then impose poor policy. The RSPT was a particularly complicated tax that failed the common sense test.

Documents released under Freedom of Information in early 2011 reveal that Treasury didn’t understand that miners would have to finance the government’s share of investment at their own cost of capital while the government only paid the risk-free rate. And Treasury seemed to think financial markets would value the 40 per cent rebate the RSPT promised. They didn’t.

The bottom line is that elegant theoretical proposals don’t always translate into sensible practical policy. The taxing of imagined mining rents is one such proposal.

Update: Capitalist Piggy asks why I describe mining rents as ‘imagined’ – here is a previous post where I discuss the notion of rent.

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20 Responses to Nostalgia for the RSPT

  1. Bruce

    Can you imagine the screams of outrage if Gillard had to write cheques to BHP and Rio? She would’ve had to do this this year under the RSPT.

    If you thought the acrimony about the MRRT was bad, that would have been a high point even in the Gillard government’s record of sheer unadulterated incompetence.

  2. Token

    The problem is the government has been too eager to accept the results of complex modelling at face value and then impose poor policy. The RSPT was a particularly complicated tax that failed the common sense test.

    This fallacy seems to be rife throughout public policy making & building in scale due to the lack of accountability of the people concerned.

    There are too many events in recent memory (like Barings, HIA, etc) which reinforces this point.

    If this attitude is not stopped, the next mistake will be bigger and worse than the AGW scam & all the money wasted by the Rudd/Gillard government combine.

  3. Capitalist Piggy

    “…The taxing of imagined mining rents is…”

    Why do you say “imagined”?

  4. Rabz

    Unlike the MRRT, we’re told, this tax had teeth and would have raised substantial revenue.

    For those criminal, incompetent lobotomised squandermonkeys to then piss up against the nearest wall.

    So just how frigging embarrassingly braindead are those labor cretins and the equally useless parasites in the treasury?

    Incompetence of this magnitude is simply not acceptable in a so called advanced economy.

    Treasury is yet another faeces laden stables for the Coalition to put the fire hose through.

  5. Token

    Unlike the MRRT, we’re told, this tax had teeth and would have raised substantial revenue.

    It is a tribute to Sinc that he challenged that fallacy in print in the Oz.

  6. Rodney

    A woman once rang a talk-back radio chap in Armenia.
    “Can you predict the future” she said.
    ” the future is no problem”, said the sage. “It is the past that is hard to predict”.

  7. Grey

    Documents released under Freedom of Information in early 2011 reveal that Treasury didn’t understand that miners would have to finance the government’s share of investment at their own cost of capital while the government only paid the risk-free rate.

    Last time Professor Davidson cited these FOI documents he didn’t seem to have a good idea of their contents.

    Has he acquainted themselves better with them subsequently? If so which particularly document from this batch does he refer to.

    In fairness it wouldn’t surprise me if the Treasury was not aware of this pseudo-fact, for the reason it isn’t really a fact.

    For example, suppose I go to the bank and ask for a loan to purchase a $100 000 property and then tell them I intend to sell it in 10 years and repay the loan on the proceeds – I have a lease agreement signed that indicates I should be able to cover the interest costs over this 10 year period. They offer me an interest rate.

    Suppose I then tell them that when I sell it after 10 years, if I get more than 140 000 dollars I have to give 40% of everything above that to my Aunt Mabel is the bank going to suddenly demand a higher interest rate?

  8. .

    Last time Professor Davidson cited these FOI documents he didn’t seem to have a good idea of their contents.

    Yes, he did.

    Suppose I then tell them that when I sell it after 10 years, if I get more than 140 000 dollars I have to give 40% of everything above that to my Aunt Mabel is the bank going to suddenly demand a higher interest rate?

    Yes.

    Your loan will be more than 140k, and 40% of 140k is 56k, not 40k.

  9. Sinclair Davidson

    Last time Professor Davidson cited these FOI documents he didn’t seem to have a good idea of their contents.

    Really?

    While I find your trolling amusing, I have zero-tolerance for your lying. So please lift your game.

  10. .

    *The nominal cash flows on your loan amortisation are will be more than 140k on the 100k loan at current market interest rates.

    You have risk in that you may not be able to lease the property as well.

    You are out of your mind grey.

    Your example is so bloody stupid.

  11. Sinclair Davidson

    . – do not engage his stupidity, you know the drill, he’ll drag you down to his level and then beat you with experience.

  12. .

    For example, suppose I go to the bank and ask for a loan to purchase a $100 000 property and then tell them I intend to sell it in 10 years and repay the loan on the proceeds – I have a lease agreement signed that indicates I should be able to cover the interest costs over this 10 year period. They offer me an interest rate.

    Suppose I then tell them that when I sell it after 10 years, if I get more than 140 000 dollars I have to give 40% of everything above that to my Aunt Mabel is the bank going to suddenly demand a higher interest rate?

    Clearly I misunderstood this at first.

    Please explain how this is profitable?

    You wouldn’t make any accounting profit on this project.

    Even if you could secure a lower temporary interest rate your profitability (rate of return) would be less than 0.4% per year.

    The Government bond rate is about 2.7%.

    You are presuming that your loan is basically going to cost you nothing.

    You then assume profitability above 4% per annum ought to be taxed automatically at 40%.

    What a fucking stupid, mindless, time wasting “example”.

    Suppose I then tell them that when I sell it after 10 years, if I get more than 140 000 dollars I have to give 40% of everything above that to my Aunt Mabel is the bank going to suddenly demand a higher interest rate?

    YES THEY WOULD. THERE IS MORE RISK.

  13. James in Melbourne

    The problem is the government has been too eager to accept the results of complex modelling at face value

    Hmmm, now in what area have I seen this before?

  14. .

    . – do not engage his stupidity, you know the drill, he’ll drag you down to his level and then beat you with experience.

    The “example” is so fucking brain dead trying to translate and sell the mining tax in terms of a residential property investor.

    You are right, his goose is cooked.

  15. .

    Your loan will be more than 140k, and 40% of 140k is 56k, not 40k.

    This is correct if the firm has multiple projects.

    Viewing mining or a mining company as one big project is conceptually retarded.

    With this in mind, banks have even more reason to charge higher interest rates, ration capital and laugh at Swan’s stupid idea of MRRT credits as liquid, marketable assets.

  16. Louis Hissink

    The reason the MRRT is in a mess is also due to the need to circumvent the constitution since this tax is not allowed under present arrangements.

    A clear case of making a self-wrapping web when they first start out to deceive.

  17. H B Bear

    C’mon you guys. The Wombat Whisperer has explained the Resource Super Profits Tax to you before.

    Are you dumb or just not listening?

  18. Pedro

    Let’s ignore the meal mark made of grey’s question. The answer is no. And the asking of that question is to self identify as a dummy. It’s stupid for two reasons.

    The first and biggest flaw is that grey is comparing a claim on the capital receipt to a claim on a share of the rent. The proper comparison is is grey is borrowing all the purchase price but getting only 60% of the rent above the bond rate.

    The second and also big flaw is that the priority rules are different. The govt will take its tax. Aunt Mabel sits behind the bank and so does not affect their claim.

  19. .

    Grey’s argument is insane

    Scenario 1:

    One project, not profitable at all.

    Tax paid at 40% rate as “excess” over 40% profit…$0

    Scenario 2:

    Firm with multiple projects, profitable in year 10

    Um, what consideration of operating costs?

    What is carried forward etc?

    So did Grey/Jinmaro factor in other income such as working 9-5 for his silly example with one project?

    So basically the tax rate is anywhere between 0-40%.

    Basically what Grey wants is for the banks to give a guarantee they will buy a heap of puts on behalf of miners at no cost to the bank. The miners would therefore become put writers – which is in inherently risky.

    That is why the banks would want a higher cost of finance for miners.

  20. 2dogs

    By the time the right to mine anywhere goes through the long and involved exploration and approval process, it will typically have been through at least one auction or tender process which has extinguished any economic rents that might be obtained by the mine operator.

    No-one should be under the impression that a mining super profits tax will ever raise any revenue except from those small players who will happen to be lucky from time to time, where the government is taxing not economic rent but good luck.

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