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Does the new mining ‘super profits’ tax make sense?

By Geoff Carmody - posted Tuesday, 25 May 2010


If feasible, taxes on “pure rents” are efficient, raising revenue without cutting activity generating it.

Is the Resource Super Profits Tax (RSPT) a “pure rent” tax or just another tax on contestable profits? If the former, replacing distorting royalties, it’s a good idea: if the latter, why is it being proposed?

The Government’s Henry Review response raises many questions. Here are six to start (more later).

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First, what’s the investor tax rate under a 40 per cent RSPT (i.e., the final tax share of mining “super-profits”)?

Australians on a zero personal rate will pay 40 per cent, or 49.9 per cent (for those on the 15 per cent rate), 58.9 per cent (for those on the 30 per cent rate), 63.1 per cent (for those on the 37 per cent rate), and 67.9 per cent (for those on the 45 per cent rate). This covers RSPT, company tax, franking credits, and personal tax.

Super funds will pay 40 per cent (“pension phase” earnings), and 49 per cent (“accumulation phase” earnings).

Foreign investors will pay up to 80 per cent or more (allowing for RSPT, our company tax at 28 per cent, their company tax at 30 per cent, personal tax at 35 per cent, and no “franking” credits).

Various “effective” tax rates based on different total return scenarios can be devised. The above are the investor tax rates applicable specifically to deemed “super profits” under the RSPT.

The average Australian tax share of “super profits” is probably 60-65 per cent or more. Is this a “fair share”?

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Second, the government says it’s taking 40 per cent of the risk in mining projects.

If the government gets 60-65 per cent(+) of mining “super profits”, shouldn’t it risk 60-65 per cent(+) of all expenses? An allowance of 40 per cent for (some) expenses seems niggardly. Governments taking on less risk than their share of returns implies a larger effective tax base for the RSPT (and a higher implied “super” tax rate too).

Asserting no such allowances apply to existing income taxes only draws attention to the risk-sharing defects of these taxes. It’s certainly not an argument for doing the same for (much higher) investor RSPT tax rates.

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First published in the Australian Financial Review on May 18, 2010.



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About the Author

Geoff Carmody is Director, Geoff Carmody & Associates, a former co-founder of Access Economics, and before that was a senior officer in the Commonwealth Treasury. He favours a national consumption-based climate policy, preferably using a carbon tax to put a price on carbon. He has prepared papers entitled Effective climate change policy: the seven Cs. Paper #1: Some design principles for evaluating greenhouse gas abatement policies. Paper #2: Implementing design principles for effective climate change policy. Paper #3: ETS or carbon tax?

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Creative Commons LicenseThis work is licensed under a Creative Commons License.

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