Taxmen vs. miners: FT gets taxing rents right
The Financial Times is running an editorial looking at Australia's recent decision to tax its "super profits tax" on minerals producers. Predictably, the miners have squealed that this will make the country "uncompetitive." Not so - for mining profits are not like manufacturing profts: they are rents. We just published an excellent edition of Tax Justice Focus - the Natural Rents edition - which looks at this very issue (though it focused mainly on land rents, with relatively little discussion of natural resources rents.)
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.
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.
posted by TJN at 1:22 am
3 Comments:
I would like to point to two articles:
www.itio.org/documents/TDwyerPaper.pdf
and
www.freedomandprosperity.org/Articles/dwyer-11-00.pdf
which argue strenuously in defense of offshore centres and tax havens as providers of tax competition, given the (economically inefficient) propensity of OECD countries to tax mobile factors such as labour and capital vs immobile factors such as land. I am not sure how to reconcile these views with those of the TJN, since they seem to lead to diametrically opposed stances on OFCs even when arguing a common premise (that taxing land is better). I would really appreciate if you could make some comments on this.
Thanks Cristina,
Thanks for pointing out the most measured document I have ever seen coming out of the normally frothing-at-the-mouth Center for Freedom and Prosperity (whose output is mainly aimed at a certain Washington clientele). All these points can be addressed quickly and neatly. We don't have time to do this immediately, but we will get to it fairly soon. In the meantime, take a look at our "Resources" section on the TJN website, where you will find most of these points addressed.
These arguments continue to be used and will continue to be used unless they are effectively refuted point by point. Up to this last month, a "summit" in Cayman on how "tax competition drives global growth" (see http://www.prnewswire.com/news-releases/the-cayman-finance-summit-tax-competition-drives-global-growth-90780479.html ) espoused similar views coming out of Cato, Peterson Institute, and the likes. These also present attempts to: link poverty and low tax; re-regulate financial markets; etc as being fallacies, red herrings, and beholding hidden agendas. I also find it interesting how issues of sovereignty are conveniently brought in, which clearly strikes a very sensitive note in many of the ex colonies (which also happen to be offshore centres). Look more and more like the tactics deployed in the climate change controversy. Anybody trying to wrap their heads around the facts will be utterly frustrated.
Post a Comment
<< Home