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The Forum > Article Comments > RSPT is not some weird tax invented by Ken Henry > Comments

RSPT is not some weird tax invented by Ken Henry : Comments

By Bryan Kavanagh, published 3/6/2010

The miners have the wrong end of the stick. We should all be paying our land or resource rents to the public purse.

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I can understand your reasoning with the miners, Bryan, but if you're saying we should all be paying the rental value of the land we own instead of taxes, you've lost me. Don't you think governments all around the world would have done this if it is superior to paying taxes? What about elderly people who have a home but no significant income because they're retired? It wouldn't work.
Posted by Hoju, Thursday, 3 June 2010 1:21:35 PM
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Hoju wrote:

"if you're saying we should all be paying the rental value of the land we own instead of taxes, you've lost me. Don't you think governments all around the world would have done this if it is superior to paying taxes?"

If Edison is saying we should use this new electric light, he's lost me. Don't you think cities all around the world would have adopted this if it is superior to using candles?

If Dr Semmelweis is saying that obstreticians should wash their hands in chlorine before touching the patient, he's lost me. Don't you think obstetricians all around the world would have done this if it is reduces the risk of disease?

Besides, if sharing the rental value of land were such a good idea, wouldn't Mr Mugabe be doing it? - http://groups.yahoo.com/group/ozgeo/message/179 .

"What about elderly people who have a home but no significant income because they're retired? It wouldn't work."

What about elderly people who don't own a home, and who therefore pay the rental value of the land they live on AND the house they live in, PLUS taxes on their consumption, but who have no significant income because they're retired? How come that works?

But if you insist that those who are relatively well off must be kept in the manner to which they are accustomed, see http://www.moneymorning.com.au/20100602/the-losers-take-all.html#comment-12095 and http://www.moneymorning.com.au/20100602/the-losers-take-all.html#comment-12161 .
Posted by grputland, Thursday, 3 June 2010 3:52:03 PM
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Hoju of course Bryan did not get his land value tax proposal out of thin air. The Henry Review recently and the Harvey Business Tax Review in 2001 (Victoria) strongly endorse a land value tax. There is a strong body of research behind land value taxation. All political parties have been very quiet to date on the land tax recommendation in the Henry Review, but it is a discussion that this country is yet to have -in this century at least.

I am glad you are concerned about the aged etc. Land value tax would enhance the government's ability to provide good health, education and services without recourse to taxing away the incomes of people while they are working. Good for workers. Good for retirees. Let's acknowledge that our land and natural resources are Australia's wealth and our governments have a responsibility to secure it for all Australians. Margaret
Posted by Margaret, Thursday, 3 June 2010 4:12:32 PM
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The problem, Bryan, is that your analogy is not right.

Can I suggest that a miner "acquires" his resource by securing a tenement and investing often considerable funds in exploring the tenement, and if (against very long adds) he finds a resource, then he must invest more very substantial funds in resource assessment, metallurgical testing, feasibility studies and the like. But there is no profitable business there yet. To achieve that requires the investment of further substantial capital.

The analogy that is more appropriate in the real estate business is that of a developer who acquires a potential development site, but must invest capital in order to build the hotel (or whatever else the asset might be) that can support a business, develop profits and pays tax.

The reality is that if you impose an additional super tax on either business, it is less likely that the business will developed.
Posted by Herbert Stencil, Thursday, 3 June 2010 6:14:00 PM
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In fact, Bryan, you raise an interesting point. Land is surely an asset of the Australian people. Doesn't that mean that owners of land should be paying a royalty to the State Government for the use of that land?

I think that if you look at WA royalties you will find that producers of nickel and mineral sands pay a royalty of 5% of the realised revenue. Producers of iron ore, bauxite and diamonds pay 7.5% of the realised value.

An accurate analogy would be that the owner of a rental property should pay a royalty of either 5% or 7.5% of the annual rental revenue. Note that that is before any outgoings. Note also that any profit would be taxed at 30%.

And just for fun, lets charge a "fairer" return for the Australian people for the use of the national asset (the land) and charge a Super Profits Tax of 40% of earnings before interest tax and depreciation. As well as the royalty and corporate tax.

How would your property development mates feel about that do you reckon??
Posted by Herbert Stencil, Thursday, 3 June 2010 6:24:27 PM
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I beg to differ that my analogy is inappropriate, Herbert. I believe I made it clear I'm talking 'going concerns' which distinguishes my analogy from yours - i.e. a POTENTIAL hotel site.

I agree with you that there are enormous funds expended in exploration, feasibilty, development, etc. in mining, but the RSPT proposal kicks in AFTER all these costs, and once the enterprise is running at a significant profit. And this approach has a number of benefits recommeding it in comparison to the royalty approach.

Once the ore is being mined profitably, the silent partner/owner of the ore is clearly entitled to his (our) 50 per cent share in the EBIT as demonstrated by what occurs with the other forms of going concern businesses I mention.

The critical point is that the RSPT is founded in sound business practice, before tax considerations, and is appropriate economically. No, the miners won't be able to make quite such profits at our expense. That's a bad thing? They might take their bat and ball and go home? Like they didn't with the petroleum resource rent?

Don't forget, I said that if we undertake rent collection, arbitrary taxation of labour and capital must be reduced. That, indeed, is one of the shortcomings of the RSPT proposal. At least Ken Henry recommended a company tax rate of 25%, but the government has only proposed a reduction from 30% to 28%
Posted by Bryan Kavanagh, Thursday, 3 June 2010 9:32:20 PM
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