The mining tax - whose last-minute reprieve may well prove temporary -
is the greatest weakness in the argument that we gained a lot from the
resources boom. The blame for this failure should be spread widely, with
economists taking a fair share.
Late last week a majority of senators
passed the bill repealing the minerals resource rent tax, but not
before knocking out its provisions cancelling various programs the tax
was supposed to be paying for.
The government is refusing to
accept the amended version of the bill, arguing that "by voting to keep
many of the associated spending measures [naughty - most are actually
tax expenditures], senators have effectively voted to keep the mining
tax".
We'll see how long that lasts. But if you're thinking the
tax raises so little it hardly matters whether it stays or goes, you're
forgetting something. When Labor allowed BHP Billiton's Marius Kloppers
and his mates from Rio Tinto and Xstrata (now Glencore) to redesign the
tax, they predictably opted to take their depreciation deductions
upfront. Once they're used up, however, receipts from the tax will be a
lot healthier - provided it survives that long.
You can blame
Kevin Rudd, Wayne Swan and Julia Gillard for their hopeless handling of
the tax. But don't forget to copy in Tony Abbott who, faced with a
choice between the interests of Australian taxpayers and the interests
of three foreign mining giants, sided with the latter in the hope they'd
fund his 2010 election campaign.
You can also blame Treasury for
originally proposing an incomprehensible, textbook-pure version of the
tax which couldn't survive, and so getting us lumbered with a
fourth-best version. It also did a bad job of quietly test-marketing the
tax with its banking contacts and of estimating the likely receipts.
But
where were all the economists - including academics - explaining to the
public why the tax wouldn't discourage mining activity or otherwise
damage the economy, as it suited the big miners to claim?
Where
were the economists explaining the special need for a resources rent tax
in the case of the exploitation of mineral deposits, particularly when
the miners were so largely foreign-owned?
As usual, they were keeping
their mouths shut. Contribute their expertise to the public debate? Why?
Better just to criticise from the sidelines.
Part of the problem
is an ethic among economists that regards it as bad form to distinguish
between local and foreign investors for fear of inciting "economic
nationalism" - a form of xenophobia. If an investment generates jobs and
income, why does it matter whether the firms involved are local or
foreign?
It's no doubt thanks to this ethic that we do such a bad
job of measuring foreign ownership (and so deny ourselves the ability to
use hard facts to fight xenophobic impressions that foreigners now own
everything). But the best guess is that mining is about 80 per cent
foreign-owned.
Trouble is, mining is an obvious exception to this
generally sensible aversion to economic nationalism, for two reasons:
because our abundant natural endowment makes minerals and energy such a
huge source of economic rent and because mining is so extraordinarily
capital-intensive.
Added to that, as Dr Stephen Grenville (a
former senior econocrat who does make a useful contribution to the
public debate, via the Lowy Institute) has written, "mining royalties, a
state government domain, fall victim to special relationships and
inter-state competition to attract projects".
Put all that
together and you see why having an effective resource rent tax is so
essential to ensuring Australians get a fair reward for the exploitation
of their birthright. High economic rents, few jobs created and the
lion's share of profits going to foreigners mean unless especially high
rates of profitability are adequately taxed we don't have a lot to show
for the resources boom.
Saying that isn't anti-foreigner, it's
simple self-interest, the driving force of market economies. Foreigners
are welcome, provided we get a fair share of the benefits. Foreign
investment isn't meant to be a form of aid to rich foreigners.
It's
true our rate of national saving increased during the boom. But a lot
of this was foreign-owned mining firms reinvesting their profits in
local expansion rather than repatriating them, thereby increasing their
share of our productive assets.
Now the construction phase is
ending, more of the (undertaxed) profits will be sent back home. And the
capital-intensive production and export phase will mean each $1 billion
of growth in GDP now creates fewer jobs than it used to. Thank you
Labor, thank you Coalition, thank you economists.