Monday, May 3, 2010

Australia's Innovative Resource Tax

Australia's proposed resource tax is a real innovation in public finance. It allows the rest of society to share the boom from the export of natural resources, rather than allowing the wealth generated to be concentrated in the hands of those who are in the mining industry.

AWSJ, 2 May 2010: "From July 1, 2012, resource companies such as BHP Billiton Ltd. and Rio Tinto Ltd. will be liable for a 40% tax on profits made from the exploitation of nonrenewable resources. Combined with company taxes and after allowing for extraction costs and recouping capital investment, companies will pay a statutory rate of around 58%. Currently, mining companies are taxed on their production, through royalties of between 2% and 10% imposed by state governments. Those royalties will remain, but companies will be refunded those payments by the federal government."

The extra revenue will be used to cut corporate taxes to a more globally competitive level and offer more-generous tax concessions for smaller companies. The mandatory pension-fund contribution will be raised to 12% of workers' salaries in stages, from 9% now.

Many natural resources are non-renewable and the resource tax will impose an extra cost and slow down their usage.

At the same time, the increase in mineral exports raises domestic inflationary pressures and there is a need for some form of a compensation to those not in the mining or resource industry for the higher cost of living.

This resource tax is interesting now that China is unloading its US dollar reserves onto developing countries with natural resources, and there should be a wider spread of the liquid to the society at large.

The use of the resource tax should be compensatory for higher prices rather than a windfall gain, as the latter could trigger the much to be avoided Dutch disease.


Fi-sha said...

How I wish you're our Finance Minister Sir...we would be ale to tax our resources instead of losing them out to another sad..

Take care and be well Sir..

walla said...

__mars said...

The Henry tax review that introduces this idea is really just election goodies. The Rudd government plans to use that tax to increase superannuation for Australians. With the Labor government becoming unpopular here and various failures and scandals (the CPRS, the refugee, the stimulus spending, etc), he has to do something.

The business with inflation is really non-issue because it is easily countered by monetary policy, which the RBA is doing aggressively at the moment.

Furthermore, the concern with inflation is really overemphasized given that much exports income by Rio, BHP, etc goes abroad, or at least, as Labor claims. If the claim is true, there should be little concern from inflation from increase in resource exports.

I'd argue that it's politically innovative. Economically, I'd differ.