With a tax of, say, 40% of the price of a unit, there would be no guarantee of any profit at all. A mine would have to close for sure if the price fell by enough. A rent tax by definition avoids this outcome, because the tax cuts out exactly when the shut-down price is reached.

Time for third thoughts.

Actually, one more point – I think it would make more sense, economically, commercially and practically, to impose a given % tax on price per unit, not on ‘profits’, ie a % royalty.

How so?

From a policy perspective I agree, I couldn’t really complain about LCT.

Tel, yes and no. I don’t think there will be any new departments and budgets, the ATO is already rather big. But there are absolutely issues as to the scope and reach – what is a ‘non-renewable non-minimal value natural resource’ after all? What is the profits attributable to that resource? These questions are likely to be resolved, if the tax goes ahead, but frankly given Rudd’s apparent political ineptitude (not something I thought I would be saying 12 months ago!!) I think you can all calm down and look for the next storm.

This looks unlikely to happen now. In a way that is a shame, the underlying idea is not an unreasonable approach to taxation.

For instance, suppose before a mining lease is granted, the terms (including a negotiated volume royalty price) are published and some months of waiting period allows better offers to come along — the state government then offers that lease to the best payer. Simple to administer, and only a very small deviation from current practice. They could even time-limit the contract to make it long enough to encourage exploration and risk taking but short enough to allow a change in price as commodity prices will inevitably rise.

Ken Henry’s system of whacking a tax on profits was probably designed to facilitate Federal takeover of state turf — economic efficiency theory used as justification for whatever it needs to justify on this day, which is standard practice really. Taxing profits is efficient because my employer can get his hands on them without breaking the Constitution.

Implementing the Henry system requires that some companies be designated “resource renters” and their profits taxed at a different rate to other companies. However, money goes back and forth between private companies all the time with equipment hire, services to remote areas, consulting fees, and so forth. The inevitable conclusion that the Feds will come to is they need to inspect the books of all companies even tangentially related to minerals and declare this hire company to be a 30% “resource renter” and that company to be only a 15% “resource renter”. Then they will need standard rate cards for all equipment hire and services to compare against (no doubt updated by a newly invented Federal department, with a newly invented budget).

Bah! An accountant’s wet dream and a businessman’s nightmare. One more intrusion of federal inspectors into every conceivable detail of our lives. All in the name of theoretical economic efficiency… :-( We already have a tax system that is complex beyond belief, no one wants it more complex. Smack fingers. No!

It gets worse when you consider the implication that a government lowering the long term bond rate will instantly increase their tax revenue base. Thus putting additional pressure on the RBA to lower interest rates and we end up following in Bernanke’s footsteps. Let’s wait and see where the US economy goes before deciding to do that to ourselves.

Actually I don’t think it is such a bad idea. But I think that the general company tax rate should have been cut to 25% outright and all the ‘nuisance’ recommendations (abolish nuisance taxes, luxury car rules, etc) should have been put through. I don’t understand the political calculation of inflicting pain and minimal gain.

What could be more appropriate, that citizens who have spent their working lives on Australia’s soil should have their retirements funded by it?

That would actually make sense… if the government still paid people’s retirements out of tax inputs. But under the superannuation system, this new tax has merely shifted the wealth that was sitting in retirement funds over to government spending projects.

“At bottom, the idea is not a bad one. The “competitiveness” argument is a non-starter: non-renewable resources do not move. So is the supposedly ruinous effect on the net present value of multi-year, multi-billion dollar projects: tax is just one of many inputs that are altered all the time. More fundamentally, this is a global age of austerity. All governments need to capitalise on their distinct advantages: Australia’s happen to be geological. Enshrined in the country’s constitution (Chapter IV, article 91) is parliament’s right to tax metals as it sees fit. What could be more appropriate, that citizens who have spent their working lives on Australia’s soil should have their retirements funded by it?”

It’s based on neoclassical principles loosely with a lineage classical economics, in which the labour theory of value was an ingredient. Since Sinclair is forever proclaiming the superior wisdom of what he calls classical econonmics, he should be pleased.

Tel

Your summary of Keynesian economics is as intriguing as it is subtle, but I fail to see the relevance. As for ‘taxing rent ignores the effort that went into prospecting’, the Review discusses this issue at length. Check it out.

It might also be a bit of a Green vote grab, making those rich miners pay for CO2 yadda yadda. I guess we will see how the campaign slogans shape up.

On the theoretical side, correct attribution to this methodology goes to Willie Sutton, rather than Marx. A quick summary of Keynesian Economics ==> saving yesterday, saving tomorrow, but always spending today.

There is socialist theory discussing the issue (very easily found on google):

http://www.isg-fi.org.uk/spip.php?article136

Marx’s theory of land and mineral rent can be easily extended into a general theory of rent, applicable to all fields of production where formidable difficulties of entry limit mobility of capital for extended periods of time. It thereby becomes the basis of a marxist theory of monopoly and monopoly surplus profits, i.e. in the form of cartel rents (Hilferding, 1910) or of technological rent (Mandel, 1972). Lenin’s and Bukharin’s theories of surplus profit are based upon analogous but not identical reasoning (Bukharin, 1914, 1926; Lenin, 1917).

Doesn’t seem entirely incompatible with the concept of a tax on mineral rent. Certainly the oil industry have demonstrated that limiting “mobility of capital for extended periods of time” is entirely achievable. I believe that Hugo Chavez is running a similar system: grab money from minerals and use it for social programs. It seems to be working OK for Hugo.

The concept of taxing rent ignores the effort that went into prospecting to discover the minerals in the first place, which probably doesn’t matter much for Chavez and OPEC, might be more important in Australia.

Federal Labor does seem to be determined to repeat Whitlam’s ham-fist efforts and piss off the widest selection of people in the shortest time. They should learn a lesson from John Howard’s cunning that it is safer for a government to annoy a small number of people by a large amount, than it is to annoy a large number of people by a small amount. Thus the price we all pay for Howard not having the decency to retire when he rightly should have.

One question: Why does Government fund 40% of the project through the tax system? (And is it?)

The hysteria is par for the course when some slight impost on profits occurs. The same thing happened when the Petroleum Resource Tent Tax was introduced 25 years ago. I think it is all b/s, as I wrote on my bog. http://enpassant.com.au/?p=7106