Since the Henry review was released, Australians have seen a new tax go from recommendation, to revenue inclusion in budget forecasts, to being dumped -- along with a prime minister.
It's clear the biggest, immediate loser from this exercise has been Kevin Rudd. But the biggest loser in the whole resource super profits tax (RSPT) shemozzle must be public confidence in the policy process.
Ross Gittins has argued that politicians should not trust economists. I'll go further: never trust anyone trying to sell you something you don't understand.
That was the problem with the RSPT. Many people couldn't understand it and when they did finally understand it they quickly worked out it was a dud. It didn't help that Rudd and Treasurer Wayne Swan couldn't clearly explain the tax. Appeals to authority don't work when the product doesn't pass the ''birthday cake'' test. The 21 economists and other worthy authorities, such as the International Monetary Fund, did themselves no favours by supporting a clearly dud tax.
In a public policy sense the mineral resource rent tax (MRRT) is also flawed. Locking up the miners and government ministers until they agree on a tax structure is a tad too practical to be good public policy. It takes the notion of taxation with the consent of the taxed to a whole new level. From the government's perspective this is policy on the run. For all its faults -- and there are many -- the Henry review was a considered 18-month inquiry costing $10 million. Solutions generated in the shadow of a looming election should not inspire public confidence.
Ultimately the MRRT does not solve the basic problem that the RSPT was designed to solve. A nationally consistent profit-based royalty mechanism to replace the state-based royalties has not been delivered. For all the talk about a fair return on non-renewable resources, the MRRT has a narrow base and state-based royalties will be credited against the MRRT only if the company is liable for MRRT.
Irrespective of whether the RSPT would have been a good solution to the problem, the MRRT makes no attempt to deal comprehensively with (apparently inefficient) state-based royalties.
It is also unclear how much revenue the MRRT will raise. There are two benchmarks to consider. First the MRRT needs to raise more money than the current arrangement where the Commonwealth raises corporate tax and the states charge royalties.
The second benchmark is the RSPT. We're being told, somewhat implausibly, that the MRRT will raise almost as much revenue as the RSPT. Yet the uplift factor is nearly double, miners can elect to be taxed on the market value of their assets and the effective tax rate is almost half the RSPT rate. Ken Henry told the Senate that Treasury had revised its commodity price forecasts when calculating expected MRRT revenue. The global financial crisis experience is that Treasury forecasts are not reality. The MRRT revenue claims beggar belief.
So the MRRT doesn't resolve the problem for the RSPT was to have solved, the inefficient state royalty systems, and doesn't seem likely to raise much revenue. What is making things worse is that Treasury is staying tight-lipped, as if Australians had no right to take an interest in fiscal matters.
The government and Treasury just want us to trust them. But the lesson of the RSPT debate is that we can't trust them. These are the same people who told us that miners only pay 17 per cent in tax. These are the people who called miners liars and ignorant. These are the people who argued that the uplift factor had to be the government long-term bond rate to avoid over-compensation, and the 40 per cent tax rate was non-negotiable.
After suffering a long series of blunders and falsehood, the community is well within its rights to ask some tough questions. It is not good enough that the miners are happy to pay a given tax. The community is entitled to know the costs and benefits of the new tax. Answers to questions such as how much revenue will the tax raise and how does this tax rate against alternatives, including the status quo, should not be state secrets.
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