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The Forum > Article Comments > Sharing the boom > Comments

Sharing the boom : Comments

By Andrew Leigh, published 2/7/2008

Should the Rudd Government take a leaf from the Tony Blair playbook and consider a windfall profits tax on Australian mining companies?

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As the author points out, a windfall tax requires very careful scrutiny. It would appear that his proposition is to only tax the coal industry or, maybe a bit broader, the whole minerals industry. Or maybe any industry or company or person that for any reason seems to have a particularly good year - Cochlear comes to mind.
For years Cochlear dumped millions into their research and finally introduced the implant. Their first annual profit was certainly much higher than their previous years losses so it is obviously a windfall - do we tax it at a higher than normal corporate rate?
When profits are highly taxed stockholders dividends are reduced which also drives a reduction in the value of the shares which then reduces the value of superannuation funds who have purchased those shares. This is ultimately a tax on everyone.
At what point does a profit become a windfall? When a certain percentage gain is passed? Like a doubling of corporate profits - how about from $100 to $200? That is a doubling.
How about lottery winnings they are certainly a windfall, as are winnings at the race track or on the scratchies or playing the pokies or the Saturday night card game at the neighbors house?

Continued below
Posted by Bruce, Wednesday, 2 July 2008 11:27:02 AM
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How about Bill Gates? He knew he had a good idea, he worked his tail off for years and he made money for his efforts. He probably had no idea 17 years ago just how much his efforts were going to be rewarded so should he be hit with a windfall profit tax? At what point did it move from a normal profit to a windfall profit?
If you happen to be given an annual salary increase greater than expected or an annual bonus greater than expected then the obvious question becomes "who determines how much is expected?" Certainly not the recipient of the largess but rather some lowly paid public servant who is perhaps very envious of the largess of the private sector.

Windfall profits tax are a bad idea because they severely restrict the profit incentive that drives our economy - both corporate and private. This comes back to a basic tenet of taxation; businesses never pay taxes - only people pay taxes. If business taxes where eliminated prices would be reduced commensurately as driven down by competition while profits would remain constant.
Posted by Bruce, Wednesday, 2 July 2008 11:33:29 AM
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“With its coffers flush, does the Australian government really need more revenue?”

ABSABLOODYLOOTELY it does Andrew, so that MUUUCH more money can be spent on health, education, environmental remediation, renewable energy sources and a host of other basic quality-of-life and future-wellbeing things.

The bottom line is; we need a MUCH better distribution of this enormous wealth input that our country is experiencing. It is NOT sufficient for mining companies to make huge profits, with current low tax levels and small trickle-down economic gains benefiting the general community to a far lesser extent than they should be.

MUCH more of this wealth needs to go to the community far removed from the mining towns and companies.

We have been in a prosperous economic era for a long time…..while our health services, standard of education and many other basic facilities have declined….along with the Murray/Darling and many other parts of our natural and rural environment.

OBVIOUSLY, the current economic set-up is NOT WORKING properly, and never has!! We DESPERATELY need a much better system of wealth distribution.

With the amazing prices and profits that our exported primary resources are now commanding, a so-called windfall tax has surely got to be implemented.
Posted by Ludwig, Wednesday, 2 July 2008 2:06:57 PM
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I agree with all you say Bruce.

I note from the article “Few issues require such careful political management as a windfall tax. But implemented properly, it is possible to imagine that such a tax could be both economically responsible and in line with fundamental Australian values. Why not raise a little more from our lottery-winning miners today, and squirrel it away for the next recession?”

I do not believe the government has the political management skill to execute the proposal.

Whilst the government is in receipt of massive surpluses, there is no case to extract more “surpluses”

Continuity of owner re-investment will only be harmed by diversion of business cashflow into squirreled government reserves (to sit on for a rainy day).

Reading the current press on the matter, it is a bit late to anticipate collections helping the next recession anyway, it is already happening.

I have a long based mistrust of governments handling different parts of the economy differently, as is the sentimental cry of the less-well-read to deny the tax advantages of negative gearing to property investors and similarly the implications of this proposal.

(actually amend that statement, I have a long mistrust of government in general, not just when they are considering their personal fetishes).

Ludwig “MUCH more of this wealth needs to go to the community far removed from the mining towns and companies.”

Since a lot of the windfall taxable component would conventionally go to either asset reinvestment or dividends I would observe –

The capital equipment manufacturers, who are usually not “on site”, would loose out. The encashment of dividends is distributed around the country anyway, so no big difference to the local mine economy.

Maybe Ludwig could nominate some locations particularly deservign additional "government bounty" wealth and ask the question “Why do they not generate sufficient for themselves” before supporting “smash-and-grab” style tax strategies.
Posted by Col Rouge, Wednesday, 2 July 2008 3:08:16 PM
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Col, isn’t it really quite simple?

We have enormous wealth flowing into this country, and we have a dire need for massive improvements in many areas of our society.

Surely it is one of the fundamental roles of our government to make sure that this wealth translates into meaningful gains for the whole populace, now and into the future, or at least provide as much protection as possible against the looming stresses to our quality of life.

What right do mining companies have to benefit far and away ahead of anyone else from our primary resources….which are supposed to be owned by us all?

Whatever measures to more equitably distribute wealth that can be implemented, should be!

It doesn’t mean skittling the profit motive of big companies or of people going to work for them in remote places. But it does mean smaller profits for the small number of high-flyers in these companies, and perhaps slightly smaller incomes for mine employees.

I see this as being fundamental to proper governance within a real democracy.

“Maybe Ludwig could nominate some locations particularly deserving additional ‘government bounty’ ”

It is not so much locations as service or community sectors, such as health, indigenous communities, water, renewable energy, overall sustainability issues, education, etc.

“Why do they not generate sufficient for themselves”

Why should any sector, town or region have to? We are one nation. If each sector or region had to generate its own wealth, we’d end up with super-rich regions such as the Pilbara, while others remained very poor. That would result in a lot of civil conflict.
Posted by Ludwig, Wednesday, 2 July 2008 4:46:18 PM
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A windfall tax would not need to be spent within Australia. The extra funds could simply be used to pay down our foreign debt. The tax would be paid out of foreign currency which would otherwise flow to the overseas shareholders who own nearly all of the major corporations extracting wealth from Australia's assets.
Our big gain would be the reduction in the interest payments on our foreign debt. We overlook the fact that minerals, coal and oil in the ground are assets. We have been spending those assets on current consumption while still running a massive continuing current account defecit.
China and Japan have not been exporting assets but by exporting manufactured goods have accumulated massive foreign reserves. Why isn't Australia as smart?
No one mentioned taking away any extra reward earned from extra effort.
Posted by Foyle, Wednesday, 2 July 2008 8:44:02 PM
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If you are really concerned about under-funding, then advocate a re-odering of priorities, rather than another cynical cash grab. If the former isnt addressed, then the more cash that gets grabbed, the more exaggerated becomes the mis-prioritisation of monies.

There's plenty of money swilling about the public trough.

Areas where money should stop going...
1. middle-class welfare
2. business welfare (no depreciation, R&D breaks, subsidies or bailouts... likes of Toyota and Bear Sterns can sink or swim on the seas of free-enterprise
3. employee largesse... from pinching stationary for the kids, to extended leave 'entitlements' for personal lifestyle priorities, thru to the highest paid employees (executive management) who pilfer exhorbitant salaries/bonuses for sub-standard performance.
4. arts, entertainment, pretty public squares for more latte sippers, monuments that local council builds as testament to themselves, no more soft cash to crappy indy bands to pump out 10minute demos on their PCs or go 'on tour' through regional areas, at $5-$20k a pop. These individuals, who justify suckling at the public nipple because they 'enhance public good' by contributing scrunched-up-ball-of-paper-on-pedestal or cow-cut-in-half or photos of semen and vessels full of urine, can fund themselves. Maybe go and grovel at the feet of private benefactors like way back when. The public dont get an equitable interest in their art if/when it starts selling at $50k a pop.
5. the littany of systemic and expansive waste thats built into the budgeting process across all levels, delberately running out of money before yr end, to justify bigger budgets. Using waste to justify more waste.
6. No special treatment for politicians, especially retired ones. No early super payouts, no private jets and no lifetime pensions for idiot prime ministers who made a mess during their tenures. Get a job.

These would be a fair start. Would free up enormous funding for the stuff that really matters... health, infrastructure, and education, in that order.

Its nice to feel nice, but its better to feel warm with a roof over yer head and well resourced hospitals and schools.
Posted by trade215, Sunday, 6 July 2008 10:56:09 AM
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A fair point trade215. There is an awful lot of reprioritisation of funding that should take place.

But there should also be a considerable increase in the movement of wealth from the sphere of private enterprise in mining to the public arena, for the greater good of us all… or at least for the vast majority of Australian citizens who aren’t currently making a lot of money or gaining an improvement in their quality of life from the exploitation of our non-renewable once-off primary resources.
Posted by Ludwig, Sunday, 6 July 2008 10:14:12 PM
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Have you taken into account that resource companies pay royalties on production as well as company tax.
They also have to deposit into government data bases all basic geological information they obtain in exploration and production that is then after a time available to other companies.
In addition their environmental impact statements and other regulatory reports are a major source of environmental information also availble to the government free.
Posted by 58, Monday, 7 July 2008 9:06:53 AM
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