The man who was largely responsible for the resources super profits tax, treasury Secretary Ken Henry, has blasted critics of the proposed tax, telling a chartered accountants tax conference yesterday that it was “unbelievably frustrating” that economists were “loath to come to a consensus position on anything”.
Fairfax papers reported that Henry (whose Treasury biography indicates that he has never worked in the private sector) claimed “whenever an idea is ventured publicly by a person, whether that person is a policy adviser or whether it’s a government minister, there’s at least a handful of academics who will contest it … it is a great strength of economics as a discipline … But I think there are occasions on which economists might, at least for a period, put down their weapons and join a consensus.”
Henry was not only referring to the controversial RSPT, which has been roundly criticised by not only the mining industry (which is to be expected), but by leading economists (such as Steve Keen) and accounting firms (KPMG), but also the failed emissions trading scheme. That was, of course, the proposed scheme that sought to reduce carbon emissions by providing billions of dollars in subsidies to Australia’s heaviest polluters and wasn’t even supported by the Greens.
Back to the RSPT — while the views of the mining industry are hardly surprising, even ignoring the possible impact on mining investment (which may not be an all together terrible result given the riches flowing to a small sector of the economy and the resulting labour shortages) the tax is deeply flawed. As University of Queensland academic Stephen Grey noted in the Financial Review last week, the tax in many ways resembles the Australian taxpayers taking a giant margin loan over mining projects. If a mining project fails (like, for example, BHP’s Ravensthorpe nickel project or HBI ventures did), then Australian taxpayers could be liable to stump up literally billions of dollars, which would be paid to the (largely foreign) shareholders).
That the government is proposing such a tax/joint venture with the mining industry is itself questionable, that it is suggesting the venture at the height of a decade-long mining boom is a giant act of stupidity. The government claims the refund will support marginal mining projects that otherwise may not have occurred and support investment. Others would claim that such projects are marginal for a reason, and it is not for the government to use taxpayer monies to invest in projects that would otherwise be deemed too risky. (Ironically, miners themselves don’t want the refund because the prospect of a potential government guarantee on losses does nothing to help projects obtain finance in any event).
Then there are issues of retrospectively, with the majority of the funds raised by the tax coming from existing projects (specifically BHP and Rio’s Pilbara iron ore mines) and the tax’s bizarre use of historical value, rather than market value of assets to determine depreciation levels.
Plus there is the sheer complexity of the proposed tax, which has already become a bonanza for accountants and lawyers. The hundreds of millions of dollars in fees paid to financial and legal advisers are an unnecessary drain on resources caused by Henry’s beast.
If that wasn’t reason enough to question the RSPT, there is also the proposed uses for the funds raised. The largest proportion of the funds raised will be dedicated to a reduction in the rate of company tax. This has little real bearing on Australian company owners (who still pay income tax on dividends or wages paid) but will benefit foreign owners of Australian companies. Other uses for the funds raised include a state infrastructure fund (which is effectively a bribe to WA and Queensland) as well as an exploration rebate, which involves using taxpayer dollars to fund marginal exploration projects that might never make a profit.
The underlying rational for the RSPT — taxing mining companies that have made “super” profits based on exploitation of resources arguably owned by all Australians is justifiable. However, the monstrosity devised by Ken Henry is certainly not the solution. (A cleaner, simpler and easier option could be perhaps to raise to the rate of company tax on miming companies by a few points — while not a perfect solution, would appear far preferable to the RSPT).
Perhaps Henry should take up a position with the North Korean government, where he can be more comfortable in the fact that his flawed policy suggestions will receive far less criticism from those pesky economists and commentators.