Taxmen vs. miners: FT gets taxing rents right
The latest editorial, which follows another important article on this broad theme, makes a number of essential points:
Natural resource profits are not like other types of income. Because of supply constraints, resource extraction follows the economics of treasure-hunting: once out of the ground, a treasure’s value bears no relation to the cost it took to dig it up. That potentially huge extra value should belong to the nation in which it is found. Governments are right to tax resource extraction more than other activities.
We agree. Australia already levies a 40 percent “petroleum rent tax” on oil and gas profits, then taxes the remaining profits at 30 percent. Now it wants to do the same in mining, and use the extra revenues to finance cuts in corporation taxes in other non-"rent" sectors.
The FT adds:
"the fact is that companies must invest where the ore is."
Quite so. This is how it is with mineral rents: you can raise tax rates and you won't drive the investment away - because, once again, that is where the ore is.
The next step, then, would be to help developing countries realise this - and capture more of the value of their minerals for themselves, rather than handing these free rents over to wealthy multinational corporations. More on this in due course.