Australia is the only developed country that didn't have a technical recession after the global financial crisis, mostly because its mining sector kept feeding China's economic boom. Now the Labor government has decided all that wealth creation was a bad thing, and it's time to levy a 40% "super profits" tax on these companies and redistribute the money.
The news was delivered by Kevin Rudd and Wayne Swan as the centrepiece of a proposed tax reform package two years in the making. They argued that mining companies did so well that they sucked labour and capital out of other parts of the country creating a 'two-tier' economy.
The Treasurer says he wants companies to be 'growing together', and would use the tax take to build infrastructure, help low income workers with their pensions, and 'fund' a tiny, across the board corporate tax cut.
This economic thinking runs counter to everything that made Australia rich over the last three decades: namely, the embrace of competition and capitalism, which rewards high risk with high returns. Setting up a mining company is not akin to opening a restaurant. Companies invest billions of dollars in exploration, build infrastructure to bring their products to a port, and then have to complete in a global marketplace and deal with volatile prices for their goods.
Now the Rudd government wants to impose an arbitrary diktat on one of the country's most globally competitive industries in the name of 'fairness'. The government claims it settled on the 40% rate by following the lead of other trend setters like the US state of Nevada. But why not 50%? Or 60%.
The truth is that all windfall taxes, however they are dressed up and sold by politicians, are arbitrary and economically damaging. BHP Billiton estimates the 'super profits' tax would raise its total effective tax rate to about 57 % from 43%, making Australia one of the most burdensome places to mine in the world.
That money, instead, will be redirected to the Rudd government, which estimates it will reap $3 billion alone in 2012, the first year the tax would go into effect.
What Rudd and Swan didn't say is that this bonanza helped fund the Labor government's unprecedented spending spree, which sent the country from a $19.7bn surplus into a $32.1bn deficit in a single year. Given that record, it's hard to have faith that Sunday's announcement is about 'fairness' as much as it's about plugging fiscal holes that the government itself created. If Rudd really wanted to reform the corporate tax system, he would simplify it and cut Australia's sky high rates much more than the proposed trim to 28% from 30%. That would spur investment, create jobs and ultimately, a bigger tax base.
What politician wouldn't like that.