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

Third, the government argues the RSPT long bond rate uplift factor for (some) allowable expenses, including investment risks, accurately reflects the “silent equity partner” status of the government - at least for an equity share of 40 per cent. The second issue above suggests this is too low, because the government tax share is much larger, but let’s ignore this here.

Let’s also assume - for now - the proposed RSPT tax base is correct. Put aside the reality that full and immediate refundability of all expenses is preferable. Ignoring all other issues as well, on these assumptions the uplift factor seems to be OK.

But there’s no “free lunch”.

Under the RSPT the government shifts towards a higher risk, higher return tax base. When commodity prices are strong, this is a revenue plus. When conditions turn bad, it’s a revenue minus.

The RSPT makes Australia’s tax base more risky - even if it is properly specified in all respects.

Australia’s tax revenue will fall more in global economic downturns. Australia’s Budget expenses rise in bad times and fall in good times. Australia’s Budget “automatic stabilisers” might work more strongly: this might be a plus. But financial market implications may be less friendly.

Australian government contingent liabilities under the RSPT should rise. This should be reported in the Budget Papers.

Should investors price in more risk before buying government bonds? Could government borrowing costs rise? Will “risk free” government bonds include a new margin for sovereign risk?

Fourth, if we adopt an RSPT while others don’t, does the RSPT really tax “pure rents”? What if we aren’t taxing “pure” economic rents, but taxing contestable profits while owners of similar resources don’t?

“Going it alone” with a production-based RSPT can cause competitive losses. At the margin, activity and jobs losses follow, compared with a no-RSPT scenario. Isn’t this the lesson from the (deferred?) CPRS?

Mobile financial capital can be shifted to where risk-adjusted after-tax returns are largest. How can countries with assets that are substitutes for those in other countries claim to be taxing “pure rents”?

Fifth, the RSPT is retrospective. Its estimated net revenue comes substantially from changing rules for existing mines (with less scope to deduct past expenses, even if companies haven’t failed). Retrospective taxation increases the fast-growing perception of “sovereign risk” in Australia. Governments weren’t “silent partners” risking funds in existing mines, but now want large returns from them if successful.