Friday, May 7, 2010

Rudd's right to collect 'resource rent'

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We might question the moral legitimacy of Kevin Rudd's policy initiative to apply a 'resource rent' to mineral resources. Resource rent taxes are not a new concept. They are most often applied to the oil & gas industry. Royalties are something similar of course, however they are relatively small amounts. Another important difference is that royalties of 3-5% are charged upon revenue. The latest proposal by the government is to grab 40% of the 'excess profits' of business. What is more amazing, is the level at which these taxes are to apply.
Resource rent tax and royalties are a popular means of taxation for two reasons:
1. It's easy to trace the movement of materials, and production records also make it easy to hold parties to account for the tax.
2. It is very hard for businesses or resource developers to avoid the tax in as much as resources are usually fixed in-situ. You can't move a resource if you don't like a nation's political or tax regime. This is why Rudd's actions amount to extortion. Business has no choice. Of course if they did, they would be less inclined to develop resources here.

These are the practical aspects of the tax which provide some justification for taxing resources, however it is fair to say if practicality were the sole basis for taxation, then mining companies would have to pass on a great costs, and we might have a great deal of difficulty affording products made from these resources.
Resources are simply things which possess an economic value; whether water, minerals, land, trees, etc.
What about the ethics of the tax?
There are a number of ethical considerations which justify the governments expropriation of wealth from people generally, and mining companies in particular in this case:
1. Right to tax based on the democratic tradition which grants the majority the right to impose its will upon the minority (as conveyed) through the representative parliamentary system.
2. Government ownership of land based on the proclamation of Australia as a British protectorate, later ceded to the people of Australia, with the Australian government as its custodian.
3. Government statutory provisions for the ownership of resources and certain public lands. Usually these resources are defined on the basis of depth below ground level, distance from perennial drainages, from shoreline or as simply the edge of the continental shelf. These proclamations of course need to be supported by alternative or competing government claims. In most cases these claims have long since been settled. The Timor Sea Gap being a recent exception.

The fairness of the resource rent tax
There is some justification for a resource rent tax if you accept the public ownership of resources. This raises the question though as to whether government should control any rents collected, and how might it otherwise be dispersed. Might it be negotiated between vested interests on the basis of principle or decided by the government. Clearly there are conflict of interest issues. I personally would prefer a court approved corporate system, and that might favour the proceeds being used to facilitate the provision of justice, which is currently underfunded.
The other issue is the level of tax. It would seem unreasonable for the government to be able to 'extort' a higher level of tax from one group (i.e. miners) because this group is 'easy pickings'. The fact that miners have no capacity to avoid the tax should not be justification for imposing it.
Another consideration is the extent to which the mining company has actually added value to the resource, or paid for the resource. i.e. Iron ore resources in Australia or coal seam gas are in-situ; i.e. Relatively easy to find, and essentially known to exist without much doubt. It is merely a question of exploration to delineate a bankable resource. In such cases, the miner is not really adding value beyond that which was not already known. In contrast, a gold explorer does find resources which were 'blind', and they require a great deal more effort to delineate. The same is true for conventional oil & gas.
The appropriate way for the government to handle this issue might be to establish the royalties before areas are released for exploration. It could be a basis upon which competitive tendering is undertaken, or perhaps the government prefers a fixed royalty and a floating tender price.

The use of resource rent funds
Another question is what the resource rent tax receipts should be spent upon? I would suggest they seem best suited for general expenditure since an allocation to infrastructure development would lead to a worse outcome.

Current situation
In the context of the current situation, the Rudd government is proposing to impose a tax which is not a priori. The damage has already been done because investors have marked down the value of these projects and the companies which own them. The government in so doing has done irrevocable injury to the interests of shareholders. That should in itself be grounds for the Governor-General to dismiss the Prime Minister from office.
Clearly, there are two issues:
1. The inappropriateness of levying a fee for which the people or business can have not prior notice.
2. The inappropriateness of the government levying any tax
3. The desire of people for business to be taxes - because it might lessen the future burden on them. This is the 'divide and rule' principle of government. The government is more strategic here because they have the miners and banks attacking each other when they should be working together to dislodge the Australian 'fascist' government.

It is no accident that we have a fascist government. Rudd did not blow in with the last storm. He is but one of a succession of fascists, and he fits remarkably well with the contemporary values of Australia, in fact any Western society. It is societies values which have to be challenged. Business will not win this debate unless they engage in a pronounced media campaign to capture the minds of the Australian people.

The fairness of government's powers
The problem with this approach to governance is that it is by its nature unfair. It is destined to place an unfair burden upon the minority in as much as the majority has the power. The resource rent tax, which imposes an unfair burden upon resource companies (and its shareholders) is an example of such abuse. The existence of the Senate was intended to protect the people from precisely this form of abuse. The Senate often fails in this regard because the Senate comprises party members affiliated with the parties in the Lower House. The consolidation of representation was not entirely expected when it occurred after Federation. Irrespective of the 'spirit of the law', it can be construed from the structure of our democracy that there was the expectancy that reason would be the standard of value in our parliamentary system. Why do I think so? There are several reasons:
1. The parliament is required to act in accordance with the Constitution. The standard of value in this regard is reason, as adjudicated by the High Court. The way in which the government proposes such bills, debates bills, but acts without regard for the interests of minorities (as the 'spirit of the Constitution' requires) is testimony to the fact that parliament has become an instrument for the imposition of arbitrary, fascist rule. It might have a democratic 'err of legitimacy', but in fact such laws are in defiance of the law.
2. The Constitution established a certain number of seats in each house of parliament. It established seats, as opposed to groups of committees, because individuals representing the interests of members were intended to act based on their judgement, and not to subjugate it to political parties, which since the 1910s politicians have given greater allegiance.
3. The very existence of the Senate implies a spirit of principled policy making. So does the requirement for the High Court to interpret or oversee the actions of the parliament. These twin considerations imply that the parliament was always intended to act with due regard for principle, and that arbitrary policy which conveys a strategy of 'divide and rule' by government is really an act of extortion rather than good and proper government.
4. Lastly there is a requirement for the Australian parliament to act in accordance with the Constitutional requirement of 'good government'. The High Court has left this concept open, and it is also a very powerful basis for restricting the arbitrary powers of government. If the concept was not intended to protect 'principles of law', what was it intended to protect? The arbitrary power of the mob? (be it legitimatised by democratic vote).

The limiting of the parliaments powers to make laws is an important measure. It is however more important that any moral agency acts in accordance with principle to ensure equal policy for all Australians. The reason why statutory law is displacing Common Law is because it is entirely incompatible with it. The reason why government is able to expropriate from others because it targets minorities, and slowly universalises the arbitrary measure. i.e. Taxation was first imposed on the minority of rich people. Had the poor known they would be paying tax (and probably more) they might have thought otherwise of their seeming advantage.

I invite any and all Australians interested in supporting a High Court challenge to limit the arbitrary powers of parliament to visit our website Judicial Analytics, and register your interest.
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Andrew Sheldon www.sheldonthinks.com
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