Should miners believe governments really are risk-taking investment ‘partners’?

Future mining downturns make mining cash flow taxes risky. Investment booms might generate similar concerns, especially with a tax focused on mining. This might encourage broadening the RSPT base to cover other industries to diversify the tax base and reduce revenue risk.

Even so, it seems obvious that the revenue downsides under the RSPT are magnified compared with a cash flow tax, because RSPT IOUs generally accumulate rather than being refunded as they occur. And they fall due as refunds just when they’re least welcome.

Government risk minimisation suggests greater reliance on more stable, broad tax bases. Consumption expenditure is a good example. A stable tax base with cash flow treatment can share risks and returns, too.

In fact, a cash flow tax, on a relatively stable tax base, already operates fairly well around the world.

In Europe, it’s called Value Added Tax. In Australasia, it’s the GST. New Zealand has the best on offer.

The Henry Review favours cash flow taxes for some purposes (see pages 51-2, and page 91, of the Henry Review, Part I, Overview).

The Henry Review (page 51, Part I, Overview) also states that:

Consumption is potentially one of the most efficient and sustainable tax bases available to governments. Empirical evidence indicates that a broad-based tax on consumption is one of the least damaging taxes to economic growth.

It’s a pity the GST was excluded from Henry Review consideration. Was this an evidence-based decision?