Cargo-cult economics endangers the Golden Goose
By Greg Lindsay
Being situated in the South Pacific, close to the market of Asia, has proved a god-send for Australia. A culture of hard work, good institutions, and probably some luck have helped us dodge the worst of the Global Financial Crisis better than most. However another less admirable cultural feature of the South Pacific seems to have infected thinking at the national level in Australia.
The Rudd government’s Resources Super Profits Tax (RSPT) confirms what Ronald Reagan said about politicians and their view of the economy: ‘If it moves, tax it. If it keeps moving, regulate it. And if it stops moving, subsidize it.’
There is no doubt that Australia’s mining industry is moving fast. So fast, in fact, that the ‘golden goose’, as the resources sector has been dubbed, has helped pull the rest of the economy through the challenges of the GFC. Other countries would kill for a sector like this. The world’s leading mining companies are generating profits, jobs and tax revenue for all Australians.
The temptation for politicians to squeeze even more money out of the mining industry is easy to understand. They are acting precisely as Ronald Reagan predicted. But they are ignoring another bon mot about taxes, this one coined by former French finance minister, Jean-Baptiste Colbert: ‘The art of taxation consists in so plucking the goose as to obtain the largest amount of feathers with the least possible amount of hissing.’
There has been a lot of hissing following the announcement of the RSPT. That miners do not look forward to paying higher taxes is only be to be expected. Nobody does. But what is far more damaging to the long-term national interest is what this episode says about the cargo-cultist direction of economic policy in this country.
The Prime Minister has argued that mineral, oil, and gas reserves ‘belong to all Australians’. But why stop there? If you apply the same rules, sunshine and our beaches belong to all Australians, but the government hasn’t (yet?) proposed an extra sun and surf tax for agriculture and tourism.
The government claims the RSPT is a special case since it will mainly apply to foreign-owned companies. This is a very dubious and short-sighted rationale given the millions of Australians who have mining shares in their superannuation portfolios. What is even worse is the economically destructive message sent to the international business community: ‘Beware Australia and its unpredictable and punitive taxes!’
Improvements to the taxation regime for resources sector is an important policy goal. But the RSPT is bad policy for all sorts of reasons including the political predisposition it reveals for higher taxes and economic nationalism. But perhaps the most irritating feature is the disrespect on display for entrepreneurship, risk-taking and property rights. In short, we are being led right back to the kind of dirigiste policy settlement overcome by the reforms of the Hawke, Keating and Howard governments.
Regardless of the political justifications trotted out by politicians and their technocratic advisers, temporary budget fixes like the RSPT is not the path to national prosperity. My fear is that we are starting to resemble the villager of the South Pacific isles of cargo cult infamy, who stared into the sky in expectation of untold riches. Waiting around for the golden goose to land is no substitute for hard work, risk, and investment.
PS. I despair. The Treasurer now says the tax is essential for the future prosperity of Australia. Where do I start . . . . ?
The above is a press release from the Centre for Independent Studies, dated June 3. Enquiries to firstname.lastname@example.org. Snail mail: PO Box 92, St Leonards, NSW, Australia 1590.
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