Super profits tax is a just impost on miners

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.