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Cry for us Argentina

Resource Super Profits Tax Redux

The Rudd Government has been “startled by the universal rejection” of its proposed Resource Super Profits Tax, as business editor at The Australian, Andrew Main puts it.

The Government is now discussing the possibility of removing the 40% rebate and lifting the 5.7% profit threshold. No intelligent mine manager will fall for that dummy pass. Once this industry specific tax is legislated, we can expect the Government to change the tax rate according to its whim. There will be no certainty for business when mining taxes change as often as the taxes on beer and cigarettes.

For a nation so committed to a level playing field in world trade, it is paradoxical that we will no longer have a level playing field for companies at home.

Mr Rudd’s ideology compels him to raise taxation and invent new taxes. He seems determined to impose this new tax and there will be no certainty for business until the next Coalition Government repeals it.  Unfortunately the Rudd Government will have caused a great deal of damage by then. The international competitiveness of our mining industry will be reduced. The perceived sovereign risk of Australia will be increased. Mining activity and growth will be subdued. Mining company valuations will decline as will the broad share market indices, which are heavily weighted to the mining sector.

With compulsory Super, every Australian is an owner of BHP, Rio Tinto and to some degree the whole mining sector. This new tax will reduce the value of every Super fund. Australian Super funds ride on BHP’s back.  Mr Rudd is raiding our Super to pay for his deficit.

This new tax raises an important point. Australia is governed by elected representatives. They have a duty to protect Australia from the theorising of unelected bureaucrats and boffins like Dr. Henry and Professor Garnaut. Ask their advice by all means. Mine their thoughts. But discard ideas that are clearly damaging.

Academics live inside their heads in hypotheses and theorems, not in the real and complex practicality of modern business. It is not unexpected that PhD economists should come up with wild ideas  full of dangerous unintended consequences.

As Paul Keating said of Dr John Hewson, Dr Ken Henry is a “feral abacus”.  I am not at all surprised that one of the very few supporters of this new tax is John Hewson. I suppose it is possible that Ken Henry has a first class mind, but even if he does, it is of little importance, for he would be just one of many bright economists, all with very different opinions. Remember that the definition of an economist, is someone who can tell you today why their prediction yesterday was incorrect. There is precious little credibility conferred by being a bright economist. One need only look at Alan Greenspan to illustrate that point.

Certainly Ken Henry possesses a forceful, dominant demeanour that has carried him to the top of his department. Perhaps he is bullying the relative milksops, Rudd and Swan, into allowing his claim to historical fame. Though to be fair,  he doesn’t have to try too hard to convince Mr Rudd that a massive new selective corporate tax is a good idea. Falling for this  anti-corporation rubbish is part of Rudd’s Labor DNA.

Give me thoughtful and responsible politicians who listen to the hard earned wisdom of our business leaders. And give me sensible, incremental evolution of our financial and regulatory systems, over any clever economist’s grand reforming strategies.

Dr Henry received this grand strategy from Ross Garnaut’s 1975 resource tax paper. It was a bad idea during the last commodity boom and it is a bad idea for this commodity boom. Notice that this was never proposed during the long intervening commodity bear market. The chronology is diagnostic of a grubby tax grab. Happily for Mr Rudd and Mr Swan, the revenue will help them whitewash the mess they have made of Australia’s balance sheet.

It is an academic economic bureaucrat’s wet dream to devise and implement a new tax. It is the Federal Government’s job to protect us from bureaucratic boffins enthused with a big idea.

Source Conservative Observations

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