Total Resource Rents of Australia

by Karl Fitzgerald on December 3, 2013

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Major Findings

The Total Resource Rents of Australia report finds:

  • The influence of monopoly is 10 times greater than mainstream economists acknowledge.
  • Economic rents are a significant component of the Australian economy, comprising 23.6% of GDP.
  • Almost half of all government revenues could be delivered by channelling the property boom to more productive purposes.
  • Income, company and sales taxes, along with 122 present taxes could be scrapped.
  • Those with monopoly rights should face higher tax burdens than risk-taking entrepreneurs.
  • 90% of taxes are distortionary, adding 23% to prices of goods and services.
  • Efficiency dividends of $66 billion could be delivered to the economy by removing deadweight costs.
  • Low income earners could benefit from lower housing prices and an increased demand for labour.
  • Small business would rapidly expand due to less paperwork, lower commercial rents, reduced monopoly power and greater discretionary incomes.
  • The mining industry should pay 10.5% of government revenue for the privileges granted in accessing the common wealth.
  • Fishing licences, largely given out for free, should be charged a yearly licence fee based on the value of fish multiplied by volume; this principle would apply to all natural monopolies.
  • The water trading market should pay a yearly licence fee, as should other industries where resource privatisation grants ‘super profits’.
  • Monopolies should be targeted in recognition of the negative economic outcomes they deliver (i.e. DNA and seed patents,satellite orbits).
  • Carbon taxes should triple in order to replace excise duties on fuel and diesel, placing the burden at source.
  • Under a land tax system, the rural sector would enjoy a lower tax burden, encouraging decentralisation.
  • The licensing agreement with public airwaves owners could allow free advertising time for political parties in elections, thereby reducing the potential corrupting influence of campaign contributions.
  • The ability to finance infrastructure at lowest cost: capital works projects could be financed by property owners according to the benefits they enjoy, effectively repaying State Government bonds over 20 years.
  • Under a system of economic rents, tax havens and tax loopholes would be dramatically curtailed as natural resources have a fixed address and cannot flee overseas.
  • There is a need for public awareness of new forms of monopoly where super profits can be had with little risk or effort (e.g. cyber squatting).

PART I – Executive summary

Total Resource Rents

In an era where natural resources have been increasingly privatised and access is increasingly denied, monopoly should be investigated for its capacity as a taxation base. Efficiency outcomes from our study are important to all taxpayers.

The Total Resource Rents of Australia report finds monopoly rents are capable of replacing taxation at all levels of government. In 2011-12, local, state and federal governments required $390.067 billion in operating revenue.2 The most efficient form of government revenue-raising, the taxation of economic rents, can raise 87% ($340.719 billion) of revenue needed. By including ‘sin taxes’ and non taxation revenue, a fairer, more equitable tax base is possible. As demonstrated in Table 1 (below), monopoly rents have the capacity to finance government:

Table 1_TRRA

http://www.prosper.org.au/2014/04/22/total-resource-rents-magazine/

Read the full report via:

9 Comments

  1. Sid Samar11-12-2013

    Hi Karl

    About 2 months ago I got hold of a hard-copy version of this report. I found it very interesting, and relatively comprehensive. It is a high quality publication which deserves wider circulation.. In my view, it should be among the reference texts in classes in Australian in which ideas of Henry George is thought.

    Merry Xmas to you and your family.

  2. Karl Fitzgerald
    Karl Fitzgerald11-12-2013

    cheers Sid,

    lets hope it gets a few people thinking because we’ve learnt little from the GFC. The sad thing is people think increasing the GST is the only option.

    I received a tweet from a cyber squatter today critiquing the report for mixing up a supposed difference between cyber squatting and ‘domain investment’. Read his post on the topic and then check the comments. There is little entrepreneurial about guessing a name that could be of interest in the future. That seems to be the ‘productive’ element to domain investment. May have to blog this up.

  3. Scott Baker14-12-2013

    I spread this great article around on a few relevant Facebook sites I know (you should consider adding links to do that, and for other social media, to this site).

  4. Cliff Cobb17-12-2013

    If this methodology can get you a seat at the table in political discussions, then I’m all for it.

    Eventually, however, if this is taken seriously, it will be seen as contradicting the principle of taxing only economic surplus (rent). Flat tax rates on assets or revenues may be convenient from the tax agency’s perspective, but they overlook differential productivity based on location or other factors. I’m guessing, for example, the tax on airports is a flat tax on some asset valuation, whereas the correct tax should be on differential values, such as landing rights according to time of day. Only taxes that discriminate between high- and low-value units are consistent with a Georgist framework. Other user fees may increase efficiency by limiting access to an overused resource (such as the atmosphere’s ability to serve as a sink for carbon dioxide), but those fees are not genuine rent taxes.

    Finally, the tax base for land that you propose in the first four rows does not take into account the multi-trillion dollar increase in the land tax base that would occur if other taxes (income, VAT, etc.) were removed and the increased demand for land was capitalized in higher land prices. By my own crude reckoning, a tax on land values alone (without the others in your list) would be enough to raise revenue equal to 22-25% of GDP in any industrialized nation. Since tax revenues in Australia are currently around 31% of GDP, that means the land tax should be able to cover 70-80% of total current revenues.

    This is a very important topic. Similar computations have been made for other jurisdictions. Georgists should be using these occasions to gain greater clarity about what our ideas mean in relation to the statistics that are commonly generated. It would probably be useful for some organization to hold a conference to discuss or debate the boundary between rent taxes and user fees.

  5. Karl Fitzgerald
    Karl Fitzgerald17-12-2013

    Valid points Cliff that I am pleased you point out.

    The process of collating the data was a challenging one. Finding aircraft landing slot valuations is something we aspire to. Let me know when you find them in the US! Land valuations of the various airports are also on the radar.

    The ATCOR principle (All Taxes Come Out of Rent) you discuss is also of interest. When taxes are reduced on incomes, on companies, the excess spending capacity will lead to greater competition for prime locations, pushing up land values (as you would have read Cliff on p20-21 of the report). However, until we have modelled ATCOR, I decided there was enough in the report for people to comprehend. Please feel free to share any of the work you mention.

  6. Navin Singh05-02-2014

    ‘Public airwaves owners allowing free airtime for election campaigns as a part of their licensing agreement’ – I have been a supporter of this idea, its amazing how you have traced it back to the idea of resource rent being returned to the economy.

  7. Karl Fitzgerald
    Karl Fitzgerald11-02-2014

    The enclosures of the commons are on so many fronts, all delivering an economic advantage to those lucky few. Peter Barnes was one of the first I saw write on this spectrum topic in his book Cqpitalism 3.0 on p18 of the free PDF download, quoting Senator Bob Dole, the Republican leader, who declared: “It makes no sense that Congress would create a giant corporate welfare program. . . . The bottom line is that the spectrum is just as much a national resource as our national forests. That means it belongs to every American equally.” But, as they had before, the media companies got their free airwaves anyway.

    If an accounting could be made, private appropriations of the commons in America alone would be worth trillions of dollars. The plot is almost always the same: when a commons acquires commercial value, someone tries to grab it. In the old days, that meant politically connected individuals; nowadays, it means politically powerful corporations. What’s astonishing about these takings isn’t that they occur, but how unaware of them the average citizen is. As former Secretary of the Interior Walter Hickel said, “If you steal $10 from a man’s wallet, you’re likely to get into a fight, but if you steal billions from the commons, co-owned by him and his descendants, he may not even notice.”

    And this influence? Barnes quotes Kevin Phillips, fmr Republican strategist: “The timber industry spent $8 million in campaign contributions to preserve a logging road subsidy worth $458 million—the return on their investment was 5,725 percent. Glaxo Wellcome invested $1.2 million in campaign contributions to get a 19-month patent extension on Zantac worth $1 billion— their net return: 83,333 percent. The tobacco industry spent $30 million for a tax break worth $50 billion—the return on their investment: 167,000 percent. For a paltry $5 million in campaign contributions, the broadcasting industry was able to secure free digital TV licenses, a giveaway of public property worth $70 billion—that’s an incredible 1,400,000 percent return on their investment.”

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