The Henry Tax Review recommended a resource rent tax to the Australian government, carefully designed to maintain incentives and reward risk.
The miners responded with apoplexy and a campaign of deliberate misinformation that has left the economically literate gobsmacked.
Let’s get a few things straight.
Searching for ore-bodies is not done by grizzled prospectors following a hunch, chasing an elusive dream. Exploration uses advanced technology and big licks of capital to find bankable deposits.
Under the RSPT, forty per cent of that risk will be underwritten by the Australian people, whether they find something or not.
Under Australian law, minerals are owned by the government. Landowners may own the surface, but what lies below belongs to us all.
So miners have an obligation to pay us – the owners.
Miners have puffed out their chests, claiming changing tax law is a form of ‘sovereign risk’ and Australia is now an unreliable investment destination. Cute. And wrong. Sovereign risk has a particular meaning in finance: that a country may nationalize private business, stop paying interest, or repudiate its debt. None of these apply to the RSPT.
We are told existing mines will be mothballed, billions of dollars of fresh investment is at risk and that miners will go prospecting in Africa where it is more… politically stable.
Australia remains one of the most favored places on earth for mining. We operate under the rule of law, there is little corruption, no civil wars and host many large, high quality orebodies, with more yet to be found.
A number of major mining companies have announced they are ‘reviewing’ or ‘suspending’ new projects. That will last until November when the next federal election must be held. It will confirm the Rudd Government and the RSPT or install Tony Abbott’s conservative opposition, outspoken critics of the Treasury-inspired policy move.
Rudd would be smart to make the poll a referendum on resource rents: should miners pay something for what they dig up and carry away?
The real risk for miners is contagion – that other countries will adopt identical tax laws, laws that maintain incentives to prospect and mine while sharing the benefits with the host country. This would end the free lunch giant mining companies have long enjoyed.
Mining is a form of economic rent-taking. And high principle says economic rents belong to the people. All of us.
Why did the Goverment call it a Resource Super Profits Tax? Call it a Resource Rent and that would have attracted less ire from the public. If they were really imaginative they could have dropped the company tax altogether for resource companies and charged an appropriate level for the rent. The government has done an appalling job of selling this reform.