Let’s not get bogged down in an old debate

Debate has raged for some weeks now about the 'opportunity cost' of the federal government striking a deal last year with the big mining companies over the design of the proposed new minerals resource rent tax (MRRT). Recent reports have suggested that the amount of revenue ‘lost’ could be as high as $100bn over 10 years.

While this sort of analysis makes quite an emphatic statement about the revenue that would have been collected had the original policy design been implemented, the fact of the matter is that it’s a waste of time to keep discussing hypothetical projections about the original policy design – that debate has already run its course.

An almost unanimous chorus of opinion last year concluded that the government's policy design for the original resource super profits tax (RSPT) was flawed, and that significant policy changes would need to be made if the new tax arrangements were to be fair and justifiable on policy grounds.

During the height of the mining tax debate last year, the Institute was one of the lone voices that said the original RSPT would deliver significantly higher revenues than what the government was forecasting at the time.

How did we know that?

Policy history in Australia suggests that the Treasury Department typically underestimates the potential revenue to be collected from new tax imposts: capital gains tax, fringe benefits tax and GST are recent examples. The RSPT was always likely to follow suit; and the MRRT may yet prove to be the same as well.

Recent figures released about the foregone revenue in fact reaffirm the veracity of the concerns raised last year - that the original RSPT was simply too big an impost on the Australian resources sector.

In my mind, I think it's reasonable to secure a better return to the community from the country's natural mineral wealth, but I don’t think it’s reasonable to extract mountains of cash from normal commercial businesses that take calculated risks in return for premium profits.

That said, this debate about revenues is for the history books.

Focusing on the future, I hope the government takes steps soon to release a White Paper explaining the detailed policy principles for the new tax, so that businesses and their advisers can begin to understand the inner workings of how the new laws will operate.

An announcement by the government is anticipated in the very near future. Stay tuned!