Does the new mining ‘super profits’ tax make sense?

“Sovereign risk” is now a major Australian issue. It has hit small businesses (e.g., those gearing up for home insulation activities), the finance, legal and accounting sector (building up practices to cope with the expected CPRS-related activity), arguably the telecommunications sector, and is now proposed for the most export-competitive parts of the economy.

The five issues reviewed above boil down to (i) high tax rates reducing Australian competitiveness, (ii) unequal risk/return sharing, and (iii) increased sovereign risk. These might deter investment in Australia. If this is unintended, a genuine RSPT consultation process might allow correction of design defects.

However, sixth, what if the government is deliberately trying to slow mining activity in Australia? If so, politically, the RSPT is not seen as a “pure rent” tax at all, but as an instrument of industry manipulation.

Others have already suggested the RSPT might help slow the higher-speed part of the “two-speed” economy that might re-emerge if China continues to boom.

Does the government see this as preferable to higher interest and exchange rates, and consequent adjustment pressures, arising from a resurgent resources boom?

Is this sensible, or not-too-subtle “back-door” protectionism?

Is it a productivity and income growth plus or minus?

Has the government really ruled out this strategy?

We’d better be clear on the answers to these questions (and many others) before we embark on the RSPT experiment, rather than learning the answers after the event.