The mining super-profits tax debate - an analysis

For the most part since its election in 2007, the Rudd Labor Australian Government appeared to enjoy a position which could almost have been said to have been unassailable. Kevin Rudd himself was riding high in the polls as one of the most popular prime ministers ever.

Importantly, Labor steered Australia successfully from the threat of recession, engaging in the practical and necessary business of counter-cyclical expenditure and investment in the face of dogmatic and opportunist resistance from the Conservative Opposition. Rudd’s apology to Australia’s “stolen generation” of Indigenous peoples removed from their families was also crucial and ground-breaking. And more recently, the wages of Australia’s lowest paid were, to a significant degree, restored.

But in recent months these achievements have been obscured behind scandal over the implementation of Labor’s home insulation scheme; and almost entirely overshadowed by a co-ordinated campaign to derail Labor’s proposed “mining super profits tax”. We will deal here mainly with the struggle over tax reform.

Labor Party parliamentary candidate, Andrew Leigh has put the case for the “super profits tax” on the ALP website. Leigh points out that 20 leading Australian economists support the proposed tax, including himself, John Quiggin, Fred Argy, Allan Fels and many others. And the revenue gained from the proposed tax is projected to pay for a 2 per cent reduction in company tax more broadly. This is to provide the scope for a rise in employer superannuation contributions from 9 per cent to 12 per cent.

In Australia, superannuation is a system of private retirement savings, sponsored by government, with contributions by both employers and workers. While there are serious flaws with regard to equity in the broader scheme of superannuation, obviously the proposed reform could make a big difference to the retirement incomes of Australian workers over the long term.

Also at the Australian Labor Party website, David Bradbury has put the case for the proposed tax. Bradbury argues:

The existing royalties system is inefficient and out-dated and hasn’t kept pace with the increasing profitability of the resources sector through the mining boom. Before the last mining boom, the Australian people received $1 out of every $3 of profits in royalties and charges, but at the end of that boom, that rate was down to $1 out of every $7.

Labor Minister Craig Emerson also puts a case in favour of the proposed tax. Writing at Australian political website The Punch Emerson explains how the “super profits tax”, a form of “resource rent” taxation, would replace the current system of royalties. He argues that the proposed tax regime would be fairer in that it taxes profits specifically, instead of “on the [basis of] the amount of minerals extracted”. This, Emerson insists would actually remove disincentives for new investment.

Australian economist John Quiggin has also put many arguments in favour of the proposed tax reform. He explains that in cases where mining companies make “super-normal” profits regardless of tax, the proposed tax reform will not comprise an obstacle to investment.

Specifically, Quiggin entreats us to take mining industry threats of capital flight “with a grain of salt”, listing occasions on which the mining giants have made threats in the past:

… when they were upset about tax policy, about environmental restrictions, about Aboriginal land rights, about union wage demands and work practices …

Quiggin believes such a tax would be equitable, falling mainly upon wealthy investors “many of whom are foreigners”.