Wednesday, May 5, 2010

The ethics of a Resource Rent Tax

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The Resource Rent Tax (RRT) is not a new tax - it is already applied to the oil industry all around the world. The justification of course is that oil is used by everyone so its a great resource to tax at every stage of the production process. The utility of oil ensures that it is a relatively price inelastic good.
Probably the biggest beneficiary of the resource rent tax will be NZ, Indonesia and PNG. Why? Because:
  1. NZ has huge resources of iron sands off its coast. Those resources are remote from Asia, however if they are developed, they will justify a large capacity port able to handle 180,000 dwt vessels. Higher iron ore prices will result in more expensive steel, so NZ & PNG timber resources will also benefit as more houses will be built with wood. Rio Tinto controls those resources in NZ. Of course they will need to duplicate infrastructure, and ships will have to travel further...so much for Rudd's green(house) credentials. Well I guess we all going to end up paying more tax, so that's pretty green, not having anything to spend....or is that red. Not sure what colour communism uses these days. I think green.
  2. Same problem for other minerals. Of course when the Resource Rent Tax was applied to oil, people probably did not expect that it would be applied to other minerals. The point is that if you get on this slippery slope of conceding a moral principle (i.e. that its ok to tax oil because you are a beneficiary), eventually the predators go after you. It was the same back in the 1800s when they introduced the first income taxes. They were introduced on the 'rich'. The "majority" (i.e. poor) thought this was a great system. Today the poor pay as much, if not more, tax than the rich. So you think that is justification for more taxes on the rich? Crazy, that is the thinking that got you where you are today. The answer is principles people! Not more arbitrary powers to government.
  3. PNG as well as Indonesia have iron sands along their coast, which are likely to benefit as a result of the Australian government's policy. i.e. Indo Mines and MIL Resources. These resources are on the coast - not 300km inland, and they are closer to Asia.
Pity us that the mining industry are such poor victims. They could never identify the underlying principles. Like you, decades they abandoned ideology, and they dare not alienate themselves by justifying a label by government that they are 'ideologues'. Ouch! That hurt.
The reality is that 'Big Business' is equally to blame for this state of affairs by mounting such a weak moral argument against taxation....in fact against the way government is structured.
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Andrew Sheldon www.sheldonthinks.com
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