Mining taxes anyone?

This article is cross-posted at Peter Rohde’s Blog.

The Mineral Resource Rent Tax (MRRT), aka the Mining Tax, is a big issue in Australia lately. For the non-Australian readers, this is a tax on non-renewable resources that are exploited by the mining industry on Australian territory. Most people from my side of politics vehemently oppose the Mining Tax, criticising it as “yet another tax”. If it is indeed yet another tax, then I certainly fit into the category of not wanting additional taxes. However, if it is a replacement for other taxes – notably income tax or company tax – while remaining revenue neutral (i.e. the total tax burden hasn’t increased) then I would strongly support such a tax.

To justify this position, let’s consider why taxes on companies in general are bad. In a globalised economy, it is very easy for businesses to shuffle around on the world stage. If company tax is too high in Australia, companies will begin moving offshore and we miss out on their jobs, productivity and tax contribution altogether. It is the fluidity of commerce in the globalised era that stipulates we must remain competitive by keeping company taxes to a minimum. This is a philosophy with which I very strongly agree.

Companies exploiting non-renewable resources are somewhat different however. These companies make their profit by digging up and processing what’s under the ground. Unlike other forms of business, what’s under the ground doesn’t and can’t get up and move to the other side of the world – it remains under the ground on Australian territory, irrespective of government policy. While it’s true that excessive taxation on the mining sector might undermine companies’ incentive to exploit our natural resources, who might instead turn to reserves in other countries, this isn’t nearly as big a disincentive as company tax on the non-mining sector, where business operations are much more dynamic and can much more readily cease their operations here and resume somewhere else – the options for mining coal in other countries are much more limited than the options for running a tech startup.

So, do I support more taxation? No. But do I support introducing a mining tax if we are spending every cent of the additional revenue to offset taxes on non-mining companies? Absolutely. The question to me isn’t “should we have more taxation?”. I presume everyone knows where I stand on that issue. To me the question is “some level of taxation is necessary, so what method of applying it has the least adverse impact on the economy?”. Thus, if presented with the question “should we have higher company taxes and no mining tax, or a lower company tax with a mining tax, but with the same net level of tax revenue?”, my answer is squarely that a mining tax is the way to go.

I believe both sides of politics in Australia are arguing for and against the mining tax in the wrong way. If the government were to sell the mining tax using the logic I just presented, I think many more conservative/Liberal voters would see the sense in a mining tax. Small business, which makes up a significant conservative voter base, and a substantial fraction of the economy, would be attracted to the idea of a lower company tax.

It is frequently argued in the media that the Mining Tax will drive away investment in Australia. No doubt this is true. But if it were used to offset other company taxes, the flip side of the coin would be that it would attract investment in other sectors which are more dynamic. Unfortunately the level of political debate in the country is rather low and this issue is being argued by the media in a very simplistic manner – as is the norm in the Australian media these days (I’ll save my issues with the media for a future post).