Yesterday on Twitter Rob Oakeshott asked the question:
Australian miners do not pay 13% – 18% as an effective tax rate. In an analysis published last year by the MCA I calculated the effective tax rate miners pay.
If you add State royalties on top of that (as the Henry Review implied we should) that number jumps up to over 40 per cent.
So where does the 13% – 18% figure come from? Well it is from a misunderstood econometric analysis first published by the NBER and quoted by the Henry Review. We covered that incident in May 2010. I subsequently wrote it up in an op-ed at The Age.
Last Sunday Treasurer Wayne Swan put out an Economic Note making the argument ”that mining companies in Australia get a big discount on the company tax they pay because of very generous tax concessions they get at the expense of Australian taxpayers”.
As evidence, Swan quotes an academic working paper published last year by the US think tank, the National Bureau of Economic Research. The Henry review also quoted that paper.
This argument shows a fundamental lack of judgment on Swan’s part and raises the question as to what exactly the public got for the $10 million the Henry review cost to produce. The paper, written by PhD student Kevin Markle and his professor Douglas Shackelford, is an econometric examination of the relative tax burdens of domestic and multinational corporations.
They calculate effective tax rates and then strip out size and country and industry effects (and time effects) to examine whether different types of companies face different effective tax rates.
While it is a very good paper, Markle and Shackelford never intended to support the argument that the Henry review or Swan is attempting. This paper has been quoted inappropriately and out of context. What is extremely concerning is that Treasury and Swan’s advisers don’t know that context, or don’t care about the context. Either way, through ignorance or indifference, the Rudd government is attempting to introduce a tax based on an argument that is demonstrably wrong.
Even the authors of the paper agreed the government and Treasury had got it wrong.
So the 13% – 18% effective tax rate figure is a furphy.
But then we get this:
Now that doesn’t mean that all large businesses are paying tax at the moment – some new large miners are not paying tax right now due to depreciation write-offs and the like. But that doesn’t mean that they won’t pay tax – and lots of it – in future. The point it that large business tends to pay higher rates of effective tax than do smaller businesses (despite our corporate tax system being advertised as being a flat tax system).
Update: In comments brc asked the question:
Well I’m interested to see if Oakeshott is really interested in the data or just trying to find a line to spin.
In answer to that question Rob Oakeshott has tweeted this post to his 14,734 followers – so he is interested in the data.