Wednesday, March 27, 2013

Mining pays its way

To blame Martin Ferguson for all the ills of the Rudd-Gillard government as Richard Denniss has done highlights exactly the credibility problem the government faces.  The government simply doesn't understand why business mistrusts it so much.

Rather than denigrate the contribution that mining has made to the Australian economy we should encourage an industry that is growing and providing employment opportunities in an otherwise somewhat stagnant economy.

There a view that mining doesn't pay enough tax — yet that view is simply wrong.

The mining industry pays substantial tax.  According to the latest (2009-10) ATO data, the mining industry with a taxable income of $23.8 billion, paid $6.8 billion in net corporate income tax (excluding royalties) at an average effective tax rate of 28.5 per cent.  Mining was the second largest contributor to corporate income tax revenue after Financial and Insurance Services that paid $15.9 billion out of taxable income of $72.3 billion with an average effective tax rate of 21.8 per cent.

It is simply not true that miners have shirked their responsibility to pay taxes.  Indeed they pay taxes on top of state royalties.

So the notion that Ferguson's legacy is a budget shortfall during a mining boom is somewhat misleading.  True, he was a cabinet minister at a time when the government proved incapable of balancing its budget but the blame must be shared around.

The expansion of the mining industry and the resources that are being attracted to the industry are a capitalist economy at work.  We are seeing exactly what should happen under specialisation and the division of labour.  Those industries where Australia has less of a comparative advantage are shedding resources to the mining industry.  This works through increased prices and wages.  It is remarkable that Denniss is able to portray this process as being some sort of anomaly or mistake.

The most frightening aspect of Denniss' anti-mining screed is his view that a ''monopolist'' would manage the Australian mining sector differently to how it is currently managed, as if that were a good thing.  Denniss suggests that the resources minister should act as that monopolist would.  Here Denniss is criticising Ferguson for not being a communist!

Just as public ownership of the commanding heights is a failed experiment, so managing private assets for the public good is an economic experiment that has been tried and failed.  Adam Smith famously said that he has never seen any good come from those who profess to act for the public good.  Little has changed in the subsequent 240 years.

Australia is highly reliant on foreign capital and foreign investment.  It is an unaffordable luxury to indulge in the kind of xenophobic characterisations whereby it becomes acceptable to demonise mining because it is largely foreign owned.

Rather than bemoan the fact that a minister had a deep understanding of his portfolio area and the economy, it would be an improvement if more ministers had those same characteristics.

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