A Super Profits Mining Tax for Australia

The Australian federal government has proposed a super profits tax on mining companies which seems to have stirred a great deal of passion from industry leaders and from leaders on both sides of the political spectrum. Unfortunately, much of this passion is directed at preserving entrenched interests, rather than providing a vision for the future of the country, and how Australia can turn the "luck" of a huge mining resource at a time of growing demand in China into a long term advantage for economic development.

The government clearly sees the super profits tax as an election winner, and the opposition sees it as an opportunity to defeat the government in the forthcoming election by aligning itself with the mining industry and opposing the tax on principal. Industry leaders with investments in the mining industry oppose the tax on the assumption that it will have a negative impact on their profits, and their bottom line. The public sees a wide range of entrenched interests trying to win them over by spending a lot of money advertising the reason for their support or opposition to the tax.

Industry and government leaders need to take a step back, think about the future of the country, instead of their short term interests, and take the course of action that is in the best long term interests of not only the government, or the mining industry, but every Australian. Minerals are finite, non renewable resources that are owned by all Australians, not the government of Australia, not the government of Western Australia, not the government of Queensland, and not the mining industry.

While the market system has proven to be the most efficient way of organizing our economy in the short term, it can be a ship without a rudder from a long term perspective, especially during a minerals boom. Resource booms in many parts of the world have provided enormous opportunities for development. These opportunities have often been squandered by not addressing the distortions mining and resource booms have on other sectors of the economy, on the political system, and on individuals. There is a price to pay for negative consequences on the environment, and on other export industries that decline because of higher exchange rates.

The most recent example of the type of costs that are not incorporated in the market system is the oil spill in the Gulf of Mexico in the United States by BP, which is having a major negative impact on the environment, other industries, individuals and government. A tax under such circumstances would not be unreasonable as a hedge against such unexpected consequences. The market system does not have a mechanism to capture these.

Large multi national companies do not necessarily have the interests of the country in which they operate as their highest priority. Their priority is to maximize profits. Unfortunately politicians do not always have the interests of the people they represent as their highest priority. Their priority is to stay in power.