Wednesday, May 12, 2010

Op Ed piece on the Resources super profits tax

For those who read the West Australian newspaper my colleague Gavin Mooney and I have an op ed piece in today's edition of the West Australian newspaper (Wednesday May 12) on the Rudd Government's proposed tax of mining super profits (see page 20 of the paper).
The full piece is below.

Super Profits Tax is a just impost on miners
By Gavin Mooney and Colin Penter
The West Australian Wednesday 12 MAY 2010

The hysteria from the mining industry to the proposed 40% Resource Super Profits Tax (RSPT) demonstrates just how corporate Australia uses its political and financial power to protect its own privileged interests. (The West in its editorials of May 3 and 8 has been one of the few voices to alert the public to some of the potential benefits of the tax.)

Andrew Forrest of FMG accuses the PM of misleading the public; he himself comes out with the nonsense comment that a tax of 40% on excess profits is equivalent to a 40% nationalisation of the mining industry. Clive Palmer, another of the ‘big miners’, suggests Kevin Rudd is “a communist”. These ‘big miners’ even claim that they oppose the tax to protect working families.

We all knew they would attack the tax – fair enough but could we have known what sillinesses they would employ in doing so? These statements are from the ‘Captains of Industry’ who pay themselves massive incomes to run these mining organisations. Oh and if Kevin Rudd is a communist, what does this say about Ken Henry, the Secretary to the Treasury, whose idea this was. Reds not under the bed but in the Treasury, good heavens!

The Deputy Opposition Leader Julie Bishop further fuels the notion of a ‘communist’ plot by suggesting that the idea of the tax is straight from the pages of Marx’s Das Kapital (The West May 8)! Hysterical responses are not limited to the ‘big miners’.

Let’s put this in some sort of perspective. Mining companies are granted privileged and exclusive access to resources that are owned by the Australian people. That is the source of their excess profits.

Some relevant figures. In 2006-7 mineral production totalled around $100 billion, of which the Australian community, who owns the resources, received little more than 7% in tax revenue.

As the Henry Review demonstrates, as a proportion of profits, mineral tax and royalties have declined over the last decade, as the share of the profits made by the mining and resources industry has increased exponentially.

The idea too that many jobs will be lost as a result of this tax does not stand up to examination. Total employment in the mining industry is only a little over 130,000.

Furthermore, the mining industry causes significant economic, social, environmental and community harms to the Australian public as a result of the industry’s activities. Surely it is for the perpetrators to contribute to ameliorating these harms.

In Australia in general what has been happening to profits? Between 1960 and 1980, as a percentage of GDP wages rose from 52% to over 60% while corporate profits remained mostly under 20%. Over the 25 years to 2005, wages fell to 53% while corporate profits increased markedly to over 27%.

In 1980 the economy was not going bust. Firms with ‘low’ profits were not taking their businesses overseas. But since that time profits have grown not just strongly but astronomically. And remember that profits, especially those in the mining industry, first and foremost go to the top end of the income scale.

Here we have a large part of the explanation why income inequality has increased in Australia in recent years.

In market economic terms when firms within some industry or other make massive (read excess) profits this is supposed to be sorted out by new firms being attracted into that industry and greater competition thereafter forcing down profit margins. The community benefits through lower prices and the companies’ excess profits are curtailed. But in mining (and for example the banks) there are major ‘barriers to entry’. There are then ‘monopoly rents’ (i.e excess profits) to be earned.

So how so resolve this in economic terms? Simple. Tax the excess profits. This is not communism. It is not taken from the pages of Das Kapital. It is a standard way of sorting out a failure of competition in the market place.

We can however see that the ‘big miners’ might well want to argue ‘why pick on us?’ when for example the banks have also been making massive excess profits. A recent report from the Australia Institute (‘A licence to print money: bank profits in Australia) shows that the excess profits – those which arise because of their monopoly position - of the big four banks amount to $20 billion a year – that is excess (not total) profits of $1000 for ever man, woman and child in Australia!

We would support that argument if the ‘big miners’ were to make it. We would not use it however to suggest abandoning the excess profits tax on the mining industry but rather extending it to the banks.

The Rudd Government must have the courage not to abandon this tax on excess profits in the mining industry. Better still they must extend it to cover the banks.

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