The Miners, the Pollies, the Economists and the Resources Tax. (May 26, 2010)

With the Federal Parliament in session for a couple of weeks the matter of the 40% super profits resources tax was bound to become a focal point of less than enlightening argy-bargy.

Today a group of 20 leading academics and economists has backed the Rudd government's proposed mining tax, and while agreeing that the sector should be required to contribute an increased share of profits when they rise above a certain level, they make the point that it is still appropriate for the big miners and the federal government to negotiate on the details.  Among the signatories is former chairman of the Australian Competition and Consumer Commission Professor Allan Fels, who had said previously that the ongoing debate over the tax has been dominated by misinformation.

The letter from the economists points out that: "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. The existing royalty system reflects the fact that it is desirable to levy a charge for access to publicly-owned mineral resources, in addition to normal corporate income tax."

However, Professor Fels told ABC Radio: "They (the miners) are paying the wrong kind of tax. Having royalties on production actually deters production, while John Quiggin, Australian Research Council Federation Fellow in Economics and Political Science at the University of Queensland was critical of the federal opposition's claim that the tax, would lead to higher food costs: "That’s about the least defensible. There's no reason at all to think that the tax is going to affect the world price of these minerals, and therefore that that’s going to feed in any way into Australian consumer prices. It certainly is depressing to see this kind of scare tactic put up, it really is just distorting the debate."

The Minerals Council of Australia through its chief executive, Mitch Hooke told the ABC: "The concept’s fine, we agree with the economists that the concept's fine," and noted that the council put a profits-based tax system on the table during the Henry tax review process. However, he added: "It’s a bit rich to be out there saying they [the government] want to consult with us now and then limiting the nature of those consultations."

Publicly at the moment there is far more heat than light being generated from most sides:

Finance Minister Lindsay Tanner: "This is the government of Australia, and the parliament of Australia making decisions about Australia's tax system. We are negotiating about detail, but this is not about some kind of deal behind closed doors with the resources sector."

Nationals Senate leader Barnaby Joyce: "It wouldn’t be surprising in a globe of about six billion people that you could find a few people to support the mining tax. The biggest issues coming before us is the global sovereign crisis - which is something by the way I was mocked for talking about earlier on - but it’s here now."

As Australia's sovereign debt is miniscule it is not clear just what he means.

Leader of  the Federal Opposition, Tony Abbott on 2GB radio: "Any fair-minded analysis of the evidence would suggest that mining companies, when you throw in corporate taxes and royalties, are paying more than their fare share of tax. Yet because it suits the political purposes of this Government they're being blackguarded up hill and down dale."

Treasurer Wayne Swann: [Mr Abbott's comments are] "extraordinary". Not even the miners believe they are paying too much tax."

Opposition resources spokesman Ian Macfarlane: "I think economists are put here to make weather forecasters look good. I was at a luncheon with [Reserve Bank governor] Glenn Stevens in Toowoomba only a month ago where his opening line was, 'Yes I know everything I predicted 12 months ago didn't happen'."

Opposition finance spokesman Andrew Robb: "This debate has never been about the design of the tax. The debate is all about the size of the tax grab. The economists are attempting to shift the focus."

But we might end with the National Times' Economics Editor, Ross Gittins having his say as to why:

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