Peter Smith

The “dumb” twenty

One of the main hallmarks of a ‘socialist economist’ (leaving aside whether in fact that isn’t a contradiction in terms) is their feasting on the proceeds. All that they see is the table enriched with multitudes of desirable morsels; for eating and sharing about. How the table came to be laden with food; where the food came from and how it was grown and harvested and transported and cooked is entirely by the way. They are always on the side of sharing and caring once the hard work of producing is done. Like PNG cargo cultists, but with less excuse, they assume production will continue to occur no matter how much of the final product is confiscated.

So it is with mining profits. They see the profits and that is all that all that they see. It was to be expected that a group (the so-called twenty economists, containing some of the usual suspects on the Left) would come out in support of the mining tax. “The current high profitability of these companies means that this is an appropriate time for them to adjust to a more efficient and equitable system of sharing the value of those [mining] rights.”

Unfortunately, another hallmark of socialist economists is their consummate ability to use in non-sequiturs to bolster their case. They have to, when you think about it. Thus we have the following: “There is no reason to expect a net contraction in mining over the longer term…because a tax on economic rent of non-renewable resources [profits tax] is a more efficient way of raising revenue than taxing mining production.” Apparently, to them, the size of the profits tax, and when it cuts in, is immaterial. Is there any size of tax that would lead these economists to think production might be reduced? Or, would lead them to change their position? The debate is not primarily about the design of the tax system per se, although that is a debate worth having, it is about the size of the tax. Don’t ‘the twenty’ get that? Are we to assume that they are dumb as well as left wing?

A third hallmark is the disingenuous in the guise of the profound. “The Petroleum Resource Rent Tax… represented a significant practical and conceptual advance…Applying this principle more broadly to other minerals represents the next measured and difficult step.” Forget the fact that the petroleum tax was brought in after consultation, applied to only new projects, and cuts in at a much higher level of return on capital. Inconvenient facts are better omitted.

A fourth hallmark is use of the ‘bleeding obvious’, as though it were revelatory and bolstered their case. “Mining is different to other industries in that it uses and depletes natural resources. Some return on those resources should flow to the Australian public…in addition to normal corporate income tax.” Yes, and everyone accepts that. Most people inside and outside the mining industry would, I am sure, be prepared to consider the merits of a profit-related tax as an alternative to the existing royalties on production. Maybe a combination of the two would be appropriate. A public debate on that may have been useful. But again, once the design of the tax has been decided, the substantive matter to decide is the size of the tax and, if it is a ‘super’ profits tax, when it should cut in.

We told by ‘the twenty’ that the “counter-cyclical nature of the tax will help stabilise the macro-economy and the level of activity of the mining sector. There are two assumptions being made here. The first is that governments will save revenue in the good times. Maybe they will, but only providing they don’t seek advice from ‘the twenty’ who would no doubt support every entitlement spending scheme that left-leaning governments could think up. The second assumption goes to the heart of the way these economists think. Capitalist economies and mining in particular, thrive on bursts of innovation, discovery, and risk-taking and commensurate reward. Stabilising activity is akin to applying a dead hand. It is the way socialists think. They don’t understand the process which has made us wealthy; they just want to share the spoils.

‘The twenty’ begin their ‘statement’ by saying that, “the current public criticism of the proposed tax has been dominated by misinformation”. Well a whole heap of that misinformation has come from the Government and Ken Henry (of my model says more tax more production fame). Unfortunately, the statement simply adds to the heap.

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