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

To tax “pure” resource rents, auctioning exploration/minerals rights is one way of valuing such rents up-front, rather than retrospectively. (These rents can’t be measured in practice: this is a market approximation.)

After that, a proper cash flow tax on mining (and other industries?) should be applied. That way, governments take the bad (tax refunds) with the good (revenue).

How does this tax work? In any accounting period (e.g., a year), all cash income received is taxable, and all expenses incurred to generate income are deductible. If cash inflows exceed expenses, tax is payable on the excess. If expenses exceed inflows, a tax refund is payable.

This offers huge benefits.

It’s simple - a feature to which key policy makers are attracted.

Fair up-front treatment of losses and gains is delivered. Haggling about depreciation tax allowances, concerns about inflation effects, “uplift factors” under the RSPT, etc., disappear.

Retrospective tax concerns disappear. “Sovereign risk” recedes. No need to worry about governments honouring refund IOUs years down the track.

What’s holding us back? Governments are risk averse and they want their tax revenue now.

Paying refunds immediately is anathema to governments. “Protecting the integrity of the revenue system” is the high-sounding jargon used to justify this risk aversion.

Government risk-aversion renders income and profits tax design even more inefficient than it needs to be, to protect short-term tax revenue. But this undermines revenue collections over time.

The second avenue out of the RSPT morass recognises, up-front, that governments are risk averse.

Volatile tax bases mean volatile cash flow tax revenue. Stable tax bases mean the opposite.