RSPT is not some weird tax invented by Ken Henry

In the meantime, we’ll continue to have a relatively few people steal much of the natural surplus that is our rent and inflate it up into bubbles, bringing on financial calamity every 18 years or so.

Reading a classical economics formula into a profit and loss statement

A connection I make between a classical economics equation - not found in current junk economics textbooks - and profit and loss statement may serve to reinforce the point that the RSPT is fair and appropriate. Australia needs it.

Classical economists observed that production (after costs are deducted) was the sum of land rent, wages and interest:

P = R + W + I

Note here that “interest” is not used in the sense of financial interest but in the classical sense of “interest” being the return on capital. Along with other classical economists, the American social philosopher Henry George observed that, of these three income forms, rent is the only one that isn’t created by labour or capital. Being generated by public factors alone, it is indeed a surplus in the production process.

So George tweaked the formula to:

P - R = W + I

… to show that if rent is captured to the public purse, it becomes unnecessary to tax (fine?) wages and capital. He further observed that real wages and returns to capital can’t increase in the medium term unless rent is captured for necessary government and is not privatised by companies or individuals (where the latter necessitates the introduction of production-distorting taxes).

This explains why poverty persists and why real prosperity continues to elude us, even though innovation and production techniques improve geometrically. The vast increases in wealth simply flow directly to those who have privatised the public’s land rents.

The formula works either at the national level or in an individual business, so let’s marry it to a profit and loss statement:

Production = $ z

Less costs: $a, $b, $c, $interest, $WAGES, $taxation = Net Profit

Add back: $interest (because we’re not interested in debt to equity arrangements) and $taxation = EBIT (i.e. RENT + INTEREST; remember, the latter “interest” is in the classical sense of return on capital).

For extractive industries, divide EBIT by 2 = (Australians’) RENT and (miners’ return on capital) INTEREST.

As I’ve shown above, this applies in similar “going concern” business arrangements.

Although the land rent for other non-going concern commercial or industrial enterprises is also be found within the EBIT, it will be much less than 50 per cent in those cases, and will be picked up best by land value-based revenues on real estate titles.

European proposals to tax banks’ “super profits” in the same way as resource extraction is misguided. Exorbitant flows of excessive rent to banks via interest charges would be curtailed quite nicely by capturing title-based land rents.

So, give us a break on the government’s 40 per cent RSPT, won’t you please, miners? You’re wrong. Why don’t you instead just zero in on eliminating company taxes and income taxes? We’re all in the same boat with you on that one, and might even join you in trying to get rid of those.