Resource Rent Tax (RRT) - The economics

[drsmith]

This is what Henry had to say;

http://taxreview.treasury.gov.au/co...ions/papers/Final_Report_Part_1/chapter_6.htm

The current resource charging arrangements should be replaced with a uniform resource rent tax administered by the Australian government. Such a tax would provide a more consistent treatment of resource projects and promote more efficient investment and production outcomes. It would also ensure that the Australian community receives an appropriate return on its non-renewable resources.

Sounds reasonable.

The current charging arrangements distort investment and production decisions, thereby lowering the community's return from its resources. Further, they fail to collect a sufficient return for the community because they are unresponsive to changes in profits, particularly output-based royalties. For example, existing resource taxes and royalties have collected a declining share of the return to resources over the recent period of increasing profitability in the resource sector (see Chart 6.1).

Also sounds reasonable.

A uniform resource rent tax should be set at a rate of 40 per cent. It would use an allowance for corporate capital system, with taxable profit associated with a resource project equal to net income less an allowance for undeducted expenses or unused losses. The allowance rate would be set by the long-term government bond rate, as the government would share in the risks of projects by providing a loss refund if the tax value of expenditure is otherwise unable to be used.

It would be interesting to know how 40% post 10yr bond rate was arrived at and how the total tax take from resources (55% including 25% company tax) compares internationally.

Petroleum Resource Rent Tax (PRRT) is levied at the same 40% rate.

http://www.ato.gov.au/businesses/co...09/029/010/001&mnu=45048&mfp=001/003&st=&cy=1

Subject to transitional arrangements, the new rent-based tax should apply to existing projects, replacing existing charging arrangements. The allocation of revenue and risks from the new tax should be negotiated between the Australian and State governments. A cash bidding system could also be adopted to supplement the resource rent tax and promote the efficient allocation of exploration rights.

There's no transition in introducing the full 40% in one go. Is this is perhaps where the government has got it wrong ?

 

[robots]

hello,

no, they got it spot on

non-renewable resource and let all australians enjoy the fruits of the mineral rich soil of our country

great work from Swan and Rudd

thankyou
robots

 

[mexican]

Thanks Dr.Smith.
Clive Palmer was saying it will be 40% on top of the 30% coporate tax the miners pay, making it 70% in total.
Maybe you should email Mr.Palmer your attachment, so he can understand the changes.
I am tipping it will be 32%-35% after the meeting with the big players is completed.

 

[satanoperca]

hello,

no, they got it spot on

non-renewable resource and let all australians enjoy the fruits of the mineral rich soil of our country

great work from Swan and Rudd

thankyou
robots

Interesting comment, so why not introduce a land tax?

Cheers

 

[robots]

hello,

already have Land Tax

http://www.sro.vic.gov.au/sro/SROna...575A1004453B6A6FAB6BE64979127CA2575A100441FA4

this idea from the government is fantastic, they doing great job

thankyou
robots

 

[drsmith]

Thanks Dr.Smith.
I am tipping it will be 32%-35% after the meeting with the big players is completed.

A distinct possibility or a graduated increase to the 40% RRT as the company tax rate is reduced.

For BHP it's tax neutral at 19% (based on company tax rate of 30%) so any starting rate would obviously be higher than that.

 

[SmellyTerror]

It seems to me that the idea of putting more money into super (ie enforced investment in Australian stocks) while also seriously undermining the share price of many of the stocks presently invested in by super funds is... suboptimal.

 

[Julia]

It seems to me that the idea of putting more money into super (ie enforced investment in Australian stocks) while also seriously undermining the share price of many of the stocks presently invested in by super funds is... suboptimal.

Yep, there is indeed a certain irony in the punters thinking they like the idea of the big miners getting slugged, and further like that such a slug will circuitously be adding to their Super, but in the meantime their share p/folios are being slammed!

 

[So_Cynical]

Yep, there is indeed a certain irony in the punters thinking they like the idea of the big miners getting slugged, and further like that such a slug will circuitously be adding to their Super, but in the meantime their share p/folios are being slammed!

More sillyness in that the average punter has his/her money spread over 3 funds, all with the default balanced investment choice...so lucky if 15% of there money is actually in the Aussie share market.

 

[pixel]

It seems to me that the idea of putting more money into super (ie enforced investment in Australian stocks) while also seriously undermining the share price of many of the stocks presently invested in by super funds is... suboptimal.

Depends on which side you're looking from.
The Aussie worker, being forced to save more, is propping up the value of Australian shares. The vast majority of forced savers will still need "advice", for which they still have to pay - likely more than before because the "advisors" will no longer be able to supplement their meagre fees with bonuses from those funds and companies they recommend. (Figure that out...) Their income tax will go straight back into Canberra's coffers.

The independent trader/ investor is also propping the shareprice up - and gets slugged immediately with CGT.

Isn't that how it works? Make a law that gives a little with one hand, then takes a lot back with the other.
Similar to those "Solar Incentives" - households are persuaded to put arrays of solar panels on the roof, their produced power is fed into the grid and paid for by the power supply company. And then, not only do power unit rates go up, but the credit for units sold back into the grid is assessed as income.

Simply brilliant!