Allan Takes Aim Blog

Super profit or envy tax

Posted on: 29 May 2010


First posted in The Chronicle, Canberra, Tuesday 24 May 

Last week I wrote briefly about the recent ACT Budget. This week I write briefly about federal budget and issues such as the Super Profit Tax (SPT).

Knowing little but the title, I asked some of Canberra’s alleged political cognoscenti to tell me how the SPT worked. Political cognoscenti or not they didn’t know. Was this because they thought it wouldn’t affect people in Canberra? If so, they were wrong, because many Canberra retirees seem to think the STP will reduce their retirement income.

Dispirited at not getting an answer, serendipity came to my rescue when a friend introduced me to *Andrew Leigh, an economics professor at the ANU, who gave me an answer that even an economic cluck like me understood.

The answer. When a mining company’s profit goes beyond Australia’s long – term bond rate  currently 6%,  any profit above that rate will attract the SPT. While this answered my question, thinking about it later it raised the question: was the bond rate an appropriate benchmark because it takes no account of the effort needed to achieve profit?

That said, I pass on Professor Leigh’s answer to help people decide if they think the SPT will benefit the community (in respect of the STP it must be said there’s a big gap between theory and reality) or deter investment in mining, cause job losses, reduce superannuation investment returns and so affect retirement incomes.

With governments encouraging mining companies to make their businesses as profitable as possible it seems odd that the Government wants to tax an extra large slice of their profit in tax because it says they do not pay enough tax on what are Australian owned resources.

As a former Superintendent on two big mining projects, the Bauxite Mining project at Gove and the Greenvale Nickel Mine Project in North Queensland, where a very large part of the workforce was non-Australian because Australians didn’t want to work on them, this statement rings hollow to me. It must be said also that if the same situation applies today, it’s easy to understand mining companies’ anger about an SPT.

I wondered also if the SPT had been the creature of politicians envious of business success or who still suffered an ideological hangover of miners being big exploiters of people and resources who should be cut down to size? If so it makes the SPT more an envy tax than a tax to help the community.

It seemed to me also that many budget assumptions about the future were “somewhere over the rainbow skies are blue” kind. Unfortunately my experience of government assumptions about the future is that, more often than not, they are based more on hope than expectation, like assumptions made by many whose application for a bank loan gets turned down.

On the other hand the extra money allocated to health in the budget sounds good. However, just as the road to hell is paved with good intentions the money will be beneficial only if the necessary personnel can be attracted to take up a career in health so that the needs of the sick can be met. Unless that happens, then no matter how much money health is allocated, in the future, people will continue to wait for a doctor in a super clinic, or a bed in a hospital, or entry to mental health and other medical facilities.

But the budget item that bemused me was the claim that $682 million over five years ($136.4 million a year) is a positive contribution to renewable energy programs. As a contribution it is petty cash. The fact is that Australia, and the world, needs billions of dollars to be spent accelerating development of nuclear fusion, so that plants capable of delivering unending and limitless supplies of clean energy will make the mining of coal and drilling for oil un-necessary and also make redundant Emission Trading and the other renewable energy schemes.

For many homeless people, the budget also made Australia feel less like home as it did many who bought homes with the assistance of the stimulus package but now face losing them because of increases in interest rates.

* Professor Leigh is Labor candidate for the seat of Fraser. dca@netspeed.com.au

The Chronicle, Canberra, for the best community news. Published every Tuesday

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2 Responses to "Super profit or envy tax"

Thanks to everyone who makes a comment about any of the blogs. The Chronicle is not online butif you want to make a comment that more people will read send it with your address to the editor at: news@chronicle.com.au.

Don Alllan

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