Monday, July 5, 2010

Gittins Enters the Economics Consensus Debate

Ross Gittins agrees with Ken Henry that academic economists need to get behind "reforms". I don't understand this presumption that economists should all be in agreement about all policies that the government happens to come up with. I disagreed with the basic rationale for the RSPT as presented in the Henry Review. I see royalties as a charge by the resource owner not as a priori a "distorting tax". I don't, therefore, accept the basic argument that the Brown tax is neccessarily "more efficient" and I could certainly see the differences between that ideal Brown tax and the tax proposed by the government. Proponents of "rent taxes" apparently believe that inefficient mining companies should use Australia's resources for free just because they can't make a profit.

Now a profits based tax may in the long-run get the government more total returns on its minerals or maybe it will either encourage too much early exploitation of resources or discourage too much investment in the long-run. Or some combination of both. Additionally, my understanding is that the resources belong to the states and the Rudd government was obsessed with centralization - see the hospital/health policy. But lets see some more balanced debate around these issues rather than everyone rushing headlong after whatever the Treasury Department comes up with. Just because the economists there thought it was a good idea doesn't mean it is. Similarly, my ideas may not be good either, that's why we have peer review in academia.

1 comment:

  1. Some would argue that resource taxes are higher in other resource rich countries. For example, Norway has a tax rate of more than 60%. Then, why it can't be 40% (much less than Norway) in Australia.

    Although, you have a point that the resources belong to the states. So, constitutionally the states are not obliged to pay resource taxes to the Federal government. That is why WA premier Colin Barnett is threatening of court action in case these taxes are imposed on WA.