There has been much heat emanating from the RSPT debate, but little light to illuminate the details in a way that enables neutral people to be informed in a balanced way.
This piece brings together a number of articles and opinions that paint a somewhat different picture from that portrayed by the mining companies, the Abbott Party, and the media where the commentary has be largely antipathetic. The articles are generally in chronological order with the most recent at the top.
In the interests of balance, the link to the Henry Tax Review: Australia’s future tax system released on 2 May is here. The most recent Treasurer’s Economic Note of 24 May, which addresses ‘RSPT myths’ is here, and the Minerals Council’s 25 May document: The truth about the super tax – the myths and the facts is here.
The following is a collection articles relevant to the RSPT. Most are accompanied by a short excerpt that summarizes the main points. To read the full article, click the title.
The contribution of Peter Martin’s blog–site is acknowledged. Because he has taken a special interest in the RSPT, there are more articles and links there than on any other site.
UPDATE 28 May from Peter Martin’s blog-site: Henry: Frankly there is more than enough investment in train in the mining sector... There you will also find the link to the complete transcript of yesterday’s Senate Estimates hearings where Ken Henry was interviewed.
Martin’s piece begins “The mining industry did not save Australia from recession as is widely believed, according to the head of the Treasury. And any investor who thinks the proposed new tax is causing stock market jitters deserves to do their dough.
“In two hours of calm, defiant and at times barbed evidence to a Senate committee just ahead of leaving on an overseas holiday Treasury boss Ken Henry rubbished claims the mining industry was Australia's Saviour, poured scorn on suggestions that it was highly taxed and inferred that what its executives say in private they don't repeat in public. Asked whether the government was planning to water down the proposed new tax in response to industry concerns he said he was aware of no such proposal. Asked whether he still expected mining investment to boom as forecast in the budget he said he had seen nothing to make him change his mind.”
To read his full piece, and use the link to the transcript, click here.
Written as long ago as 28 April by Peter Martin, We'll still be mining begins: “Don't believe everything you read in the paper. Particularly not headlines like this in Monday's Australian: ‘Mining tax will kill industry’. It is not only wrong, it's also incredibly familiar.” and ends “Minerals are about the most bolted down thing we have. Companies that want to extract our resources have no choice but to pay our taxes, even if they delay doing so until other mines become expensive. They are even digging up our gold, two decades after an impost that was going to stifle mining growth, destroy jobs and slash export earnings.”
Martin’s 19 May piece Henry to miners - no compromise on where the tax kicks in begins “Treasury boss Ken Henry has flatly rejected talk of a compromise over the mining super profit tax saying to give in on the threshold would overcompensate miners to the point where they might not actually mine.” Later: “When told mining companies didn't see things that way Dr Henry said he did "not want to debate the relative merits of intuition over analysis," adding "obviously I have a marked sympathy with the later." I don't know how many times in 25 years I've been told... well that's all very well in theory but it's not actually how the real world works, only to observe years down the track that the people we call call financial engineers who can translate theory into practice at the speed of light have moved so quickly and done so much that governments have had to respond and at last recognise the power of the theory over perceptions of what the real world is like."
On 24 May Treasury released its paper Disparities in average rates of company tax across industries that can be accessed in Martin’s Treasury strikes back – Disparities in Average Tax Rates. Martin’s quotes one paragraph: "With the exception of the finance & insurance industry, all industries pay a less than proportionate amount of tax, relative to their contributions towards gross operating surplus. The standout industries are mining and electricity, gas and water - the latter is of particular note with a contribution of less than 1 per cent to corporate tax collections for the 2004-05 financial year, but 7 per cent of corporate gross operating surplus."
If you want to know what Rio Tinto had to say, read Martin’s 24 May: Believable statement? Rio says Australia number one sovereign risk worldwide Rio’s Tom Albanese concluded: "If the tax had been in place 10 years ago, we would not have made the investment ... in the Pilbara..."
Those interested in the tenor of Fortescue’s letter to shareholders published on 25 May can read it in full. Martin’s concluding comment is “Fortunately one of the questions in the letter can be cleared up straight away: To make the point, imagine for a moment that your home loan was based on you failing to make your mortgage repayments and the house being sold in a mortgagee-in-possession auction. Do you think your banker would be happy that someone would make good 40 per cent of the loss as a reason to lend you the money - in return for taking 40 per cent of your income? The same income they were relying on to allow you to repay the loan? Clearly the banker would have stopped you buying the house because they rely on believable repayment schedules, not bankruptcy events. “The answer is 'yes'.”
On 22 May Martin begins his piece: It's not a tax, it applies to more than super profits, so how did so many people get it so wrong? “Books will be written. By the way, the government will win this one.
“Someone somewhere in the Treasurer's office must be deeply regretting ever calling it a Super Profits Tax. For one thing it applies to profits that are pretty ordinary. For another, it's not a tax...” and concludes: “A previous Labor government lost office in 1975 when it tried to borrow $4 billion to buy back mines from mining companies. This government is planning to use legislative muscle to buy in. Neither has proved popular.”
On 24 May, Ross Gittins, writing in his typically acerbic way in Gittins today - How Rudd got into the mess concludes: “And the precedent of weakness he set with all his cave-ins to miners and other rent-seekers over the emissions trading scheme means giving the miners something this time would be more likely to further incite their greed than calm them. Rudd is a weak man fallen among thieves. He may be from Queensland, but his moral compass now comes courtesy of Sussex Street. I'm sure he remains convinced of his own uprightness, but clinging to office comes first. Actually, for a bunch that puts political expediency above all, Rudd's cynical advisers have made a succession of bad calls...”
To highlight how deceptive the mining industry has been with at least some of its representations, read Martin’s 25 May piece: Mistrust anyone who produces a graph like this. The miners have used the oldest dirty trick in the book in representing statistics by truncating the bars in a bar graph. Take a look at the first graph that gives the impression that the miners paid around three times as much tax as other industries, but note that the scale on the vertical axis starts at 22% and goes to 29%. Then look at the second graph and note how the bars look when the vertical axis starts at zero. To use such a trick shows the level of deceit to which the miners have stooped. Note that what is being featured here is the deceptive way the data is being presented, not the actual figures, which themselves are debatable.
Martin’s piece of 22 May: Resources tax: Australia may be the first, we won't be the last begins: “The Paris-based Organisation of Economic Cooperation and Development has swung its weight behind Australia's proposed resource tax saying it represents a ‘sharing of the bonanza’ and will not frighten away foreign investors. The extraordinary intervention in support of the tax, in an ABC radio interview to be broadcast tomorrow suggests the so-called "rich nations club" regards the 40 per cent tax as a model to be followed by other members trying to regain control of their budgets. Angel Gurría the Mexican-born OECD Secretary-General told the Sunday Profile program the tax was one of ‘a number of preferred ways in which we like to see tax structutres work’.”
To see the Henry Review paper that details the effective tax rates different industries pay in different countries read Martin’s 23 May piece: So what effective tax rates do mining companies actually pay? You will see this is where the 17% figure for mining has been derived.
Martin’s 24 May piece: “Okay so no-one likes to part with profit, but the mining fight is becoming a spectator sport” concludes with: “Economist Ross Garnaut appealed for peace labeling the industry campaign "dangerous from a number of points of view". Simply to roll the Treasury on an issue that's been subject of very careful analysis without a lot of very careful analysis being the basis of variation of policy, I think would be very dangerous," he told the ABC.
"We need a strong Australian policy making process, we need a strong independent centre of Australian policy making, that's what gave us 20 years of reform and what is the main reason why we're in better shape than most of the world right now. To simply have pressure from industry roll this, rather than have a good discussion in the public interest leading to legislation would, I think, be dangerous."
You will enjoy reading Martin’s 25 May piece Five easy pieces - the Mining Super Profits Tax. All are succinct.
For a wry smile read Peter Martin's piece of yesterday What the experts think about the outlook for BHP and Rio? which points to what the market thinks of BHP and Rio’s prospects for investors.
If you want to read something positive about the RSPT, read Martin’s Three of the best things written about the Resource Super Profits Tax of yesterday where he gives the opinions of “Ben Smith, consultant to the 1986 Gutman inquiry into the taxation of gold mining that recommended the exemption be removed, subsequently making Australia making billions, John Freebairn of the economics faculty at Melbourne University who has the most lateral tax mind in the business as well as the most human understanding, and Alan Mitchell, economics editor of the Australian Financial Review who sees clearly where others see fog.”
Martin insists: “These pieces shows each at the top of their game.”
In his 26 May piece How much tax? Martin publishes an critical article “Ian McIlwraith has dug where the Treasury appears not to: If the Treasury analysis of corporate tax, released by Treasurer Wayne Swan and recommended by Prime Minister Kevin Rudd, is an example of the quality of that department's work generally - we're in deep trouble. After a heated 48-hour exchange of statistical fire, in which two US academics became collateral damage because their research was used as a weapon it was never designed to be, Rudd and Swan's army retreated to what it thought was higher ground, firing off a soon-to-be-published piece of Treasury research.” that concludes: “That says that the current tax regime is very inefficient in converting company income into tax receipts - something Henry's review was supposed to fix, and it is difficult to see why dropping the corporate tax rate to 28 per cent will fix it.”
Then yesterday we had Martin’s Resource Tax: 22 leading economists speak out that begins: "Although it is appropriate to debate modifications to the design of the proposed Resource Super Profits Tax, the current public criticism of the proposed tax has been dominated by misinformation." The statement is reproduced.
John Quiqqin was one of the authors. On his website there was Resource rent tax statement with links to the statement and press release.
Crikey has good some articles: Yesterday Don’t look at what the miners say, look at what they do by Glen Dyer and Bernard Keane, concludes: “The ‘debate’ over the RSPT is increasingly boiling down to a simple contest between the Government and a number of huge, mainly foreign companies that are systematically lying about the impact of the tax — as demonstrated by their own actions — and who have in effect hired the Opposition in order to run a political campaign of obstruction. These are very large, very wealthy companies used to getting their way with most of the governments they deal with. In an hitherto unseen demonstration of backbone, the Rudd Government has dared to take them on. And as Ross Gittins has pointed out, they’re deeply concerned that other governments will follow our lead. This is not just about the extra tax the biggest miners will be paying here, but about the extra tax they’ll find themselves paying overseas as well. But as always, don’t look at what they say, look at what they do. And they’re spending up big here.”
Today in Crikey Adam Schwab’s: How the RSPT may end up costing taxpayers begins: “The biggest problem with the resources super tax is not, as the big miners had earlier tried to argue that it involves too much tax being paid - rather, that the so-called tax may end up being a cost to Australians. That is because under the proposal, the “government will effectively make a contribution of 40% to the costs of the project outlaid by the entity. [With those entities] able to access the contribution by deducting the costs outlaid on a project from: the project’s RSPT income; from income of another project owned by the entity or owned by another entity of the same wholly owned company group”.
If you’re not yet satiated there is more:
Resource debate needs less heat more light and Garnaut’s got the goods on mining taxes, both by Tim Colebatch, on his blogsite, Double bind of the minerals bonanza and Mining the figures uncovers deception by George Megalogenis on his Meganomics blogsite, Canberra doesn't mind if a few miners get shafted by Michael Stutchbury in The Australian, Our oldest enemy by Nicholas Gruen on Club Troppo, Risk and RSPT and Attacking messengers by Joshua Gans on Core Economics, and Big update: Unravelling the RSPT and The RSPT as we know it will be dead before long by Christopher Joye on his blogsite.
Of course there are many other articles in the MSM on the RSPT, many written by non-economists, some by political commentators who focus more on the politics than the economics. The above articles focus mainly on the economics and the factual aspects of this complicated debate. I trust they will shine some light onto the facts that have been so overshadowed by the furious hyperbole emanating from both contestants in this emotive debate, and perpetrated by the media, much of which chooses to represent the RSPT negatively, often in doom and gloom terms. I trust this collection of articles will provide better balance to this debate, so convoluted as it has been by misinformation and too often, outright lies.
Tell us what you think.
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