Super profits tax is a just impost on miners

The hysteria from the mining industry in response to the proposed 40 per cent resources super profits tax demonstrates just how corporate Australia uses its political and financial power to protect its own privileged interests.

The West Australian in its editorials of May 3 and 8 has been one of the few voices to alert the public to some of the potential benefits of the tax.

Andrew Forrest, of Fortescue Metals Group, accuses the Prime Minister of misleading the public; he himself comes out with the nonsense comment that a tax of 40 per cent on excess profits is equivalent to a 40 per cent nationalisation of the mining industry. Clive Palmer, another of the “big miners”, suggests Kevin Rudd is “a communist”. These “big miners” even claim that they oppose the tax to protect working families.

We all knew they would attack the tax, fair enough, but could we have known what sillinesses they would employ in doing so? These statements are from the captains of industry who pay themselves massive incomes to run these mining organisations.

Oh and if Mr Rudd is a communist, what does this say about Ken Henry, the Treasury Secretary, whose idea this was. Reds not under the bed but in the Treasury, good heavens!

Deputy Opposition Leader Julie Bishop further fuels the notion of a communist plot by suggesting that the idea of the tax is straight from the pages of Marx’s Das Kapital (The West Australian May 8). Hysterical responses are not limited to the big miners.

Let’s put this in some sort of perspective. Mining companies are granted privileged and exclusive access to resources that are owned by the Australian people. That is the source of their excess profits.

Some relevant figures. In 2006-07 mineral production totalled $100 billion, of which the Australian community, which owns the resources, received little more than 7 per cent in tax revenue.

As the Henry review demonstrates, as a proportion of profits, mineral tax and royalties have declined over the past decade, as the share of the profits made by the mining and resources industry has increased exponentially.

The idea, too, that many jobs will be lost as a result of this tax does not stand up to examination. Total employment in the mining industry is only a little over 130,000.

Furthermore, the mining industry causes significant economic, social and environmental harm to the Australian public as a result of the industry’s activities. Surely it is for the perpetrators to contribute to ameliorating these harms.

In Australia in general what has been happening to profits? Between 1960 and 1980, as a percentage of GDP wages rose from 52 per cent to over 60 per cent while corporate profits remained mostly under 20 per cent. Over the 25 years to 2005, wages fell to 53 per cent while corporate profits increased markedly to over 27 per cent.

In 1980, the economy was not going bust. Firms with “low” profits were not taking their businesses overseas. But since that time profits have grown not just strongly but astronomically. And remember that profits, especially those in the mining industry, first and foremost go to the top end of the income scale.

Here we have a large part of the explanation why income inequality has increased in Australia in recent years.

In market economic terms when firms within some industry or other make massive (read excess) profits this is supposed to be sorted out by new firms being attracted into that industry and greater competition thereafter forcing down profit margins. The community benefits through lower prices and the companies’ excess profits are curtailed. But in mining (and for example the banks) there are major “barriers to entry”. There are then “monopoly rents” (excess profits) to be earned.

So how to resolve this in economic terms? Simple. Tax the excess profits. This is not communism. It is not taken from the pages of Das Kapital. It is a standard way of sorting out a failure of competition in the market place.

We can however see that the big miners might well want to argue “why pick on us?” when for example the banks have also been making massive excess profits. A recent report from the Australia Institute (A licence to print money: bank profits in Australia (PDF 145KB)) shows the excess profits of the big four banks amount to $20 billion a year, that is excess (not total) profits of $1,000 for every man, woman and child in Australia.

We would support that argument if the “big miners” were to make it. We would not use it, however, to suggest abandoning the excess profits tax on the mining industry but rather extending it to the banks.

The Rudd Government must have the courage not to abandon this tax on excess profits in the mining industry. Better still they must extend it to cover the banks.