RSPT the thin edge of the wedge

EARLY this month the state’s major daily newspaper, The West Australian, put several reader-provided questions to Prime Minister Kevin Rudd on his resources super profits tax.

And we need go no further than question one to see what a tricky huff and puff blow-hard he is.

That question read: “The states are recognised as the constitutional owners of mineral resources. Isn’t your tax an assault on states’ rights and shouldn’t all revenue flow back to them?”

The simple and truthful answer was, ‘Yes’.

But what did we get?

An ingratiating and evasive mini-sermon, something voters have been subjected to ever since Mr Rudd toppled Kim Beazley as Labor leader in December 2006.

Here’s that sermon: “Coming from Queensland, a mining state, I fully understand the importance of the mining industry in WA. That’s why the government will re-invest the proceeds of this tax reform back into WA infrastructure by setting up a new $6 billion infrastructure fund, because it is high time that the regions in WA that generate so much of our national wealth got their fair share of the proceeds of the mining boom.”

That response was more appropriate to a question worded thus: ‘How much would you pledge to WA if you succeed in coercing the states to cede their constitutionally enshrined right to levy royalties upon minerals?’

As last week’s State Scene outlined, the move to impose a 40 per cent second-tier tax upon what Mr Rudd calls ‘super profits’ may be only the opening gambit.

The federal Treasury commissioned KPMG, for whom Mr Rudd worked before entering parliament, to identify all sectors generating so-called super profits.

At page 36, KPMG’s report listed several beyond mining; namely, brewing, banking and non-banking financial services.

But that’s not all.

At page 35 it reads: “These excess returns can arise as a result of factors such as access to natural resources (such as petroleum or minerals deposits), monopoly power, branding, patents or barriers to entry.”

This begs the question as to where Kevin Rudd, and wife, Therese Rein, would fit in since they’re now worth $53 million, a huge fortune very quickly made to no small degree from government contracts?

Now, if the precedent of super taxing mining earnings is established, this certainly suggests anyone patenting inventions now also faces the possibility of being similarly taxed.

Patents are a granted exclusive right to inventors for a defined period, during which others cannot copy their innovation be it a process or product.

Inventors thus acquire state-sanctioned monopolies for set periods, which is the reward for having invented something that satisfies needs in the marketplace.

One reason such rights are granted and protected is to encourage further invention – of machinery, hi-tech gadgetry, medicines, whatever.

Inventors, by patenting, know they’ll be rewarded with earnings over and above the long-term bond rate, which is the incentive to come forth with new ideas.

Nor is it a coincidence that the freest and lowest-taxed nations throw up the most inventions and thus patents.

Russia, before the bloody 1917 Bolshevik revolution, was at the forefront in many scientific areas of endeavour.

After 1917 the Soviet Union instead specialised in stealing patents and scientific developments from the free Western societies, generally with help from Western communists and other traitors.

This occurred simply because the incentive to invent had vaporised (we all know why) in post-Czarist Russia.

That’s why it’s difficult to recall anything other than the AK-47 assault rifle that Bolshevism can boast having fostered.

Now, with the precedent of taxing what KPMG identified as super profits in mining beyond the corporate tax rate, what’s stopping future Labor governments extending super taxing to patents, among other endeavours?

So not only are brewing, banking and non-bank financial activities in the firing line; inventive Australians are also threatened.

Australians, it should be noted, have invented more, much more, than the Coolgardie freezer and stump jump plough.

With the threat of super taxing inventiveness, won’t this be an incentive for Australians to patent in other lands, namely the US, Canada, or Switzerland, where super taxing of ingenuity and success don’t apply?

Such questions call for answers today, before the super taxing Ruddite mania reaches first base.

The prime minister should ponder long and hard what the longer-term and non-headline grabbing consequences of such likely outcomes may be upon the Australian economy.

That said, there’s one final aspect to the two-tier super tax proposal that hasn’t been adequately highlighted since it was foreshadowed in May’s budget.

Readers may have concluded, as State Scene initially had, that the origin of this proposal was the Henry Tax Report, with crucial help from KPMG boffins.

However, since the debate moved into high gear when the Minerals Council of Australia stated its opposition to the RSPT, and the government countered with a $38 million taxpayer-funded advertising campaign, another little-noted fact has surfaced.

And it is that the miners should do some real soul searching on precisely who is responsible for the emergence of this anti-state taxing blueprint.

State Scene recently met South Australian Senator Cory Bernardi, a strong opponent of the new tax.

He revealed that the MCA had told the Liberal opposition that miners are in favour of such a tax plan. What they dislike is the Rudd-Swan version of it.

That certainly puzzled State Scene.

Then I encountered a comment piece by Jason Kuchel, head of South Australia’s Chamber of Mines and Energy.

“The [super profits] tax is intended to replace the impost of state royalties, but it still represents a massive windfall for government — if projects proceed as the government expects, that is,” he wrote.

“And here’s the rub: many projects have become less attractive to those investors willing to make the inherently high-risk investments for high potential returns. Such investors have other options internationally.

“This makes our small operators who need capital vulnerable.

“Our large companies have projects overseas in their portfolio, which may be looking more attractive than their Australian projects.

“Don’t get me wrong. The resources industry nationally has been calling for tax reform to replace the complicated, and some would say outdated, royalties systems.

“Indeed, the South Australian Chamber of Mines and Energy and its interstate counterparts believe we should have a profits-based system rather than output-based royalties.”

There, right from the horse’s mouth, and in the process our unprincipled miners shot themselves in the foot.

If they’d respected Australia’s traditional federal arrangements, that is, states having independent revenue sources, namely being able to strike mining royalties, miners wouldn’t now be facing the Rudd super tax.

All their behind closed doors lobbying to have state government royalty powers scrapped now also endangers legitimate returns to so many others, including Australian inventors, meaning other golden geese now face the likelihood of being super taxed.