The Resource Super Profits Tax (RSPT)

The Rudd Government has been somewhat guilty of dithering, back-pedalling, and policy cowardice in the last couple of weeks, particular on climate change. Various commentators have honed in on the government’s immediate response to the Henry Tax Review as another policy cop-out, adopting as it does just 4 (2.9%) of the review’s 138 recommendations.

While I am somewhat disappointed in how the government has rushed out its response and the recommendations it has chosen to dodge, there is no denying that the Resource Super Profits Tax [PDF] is a rather politically bold step for a Federal Labor government to be taking. The introduction of a 40% uniform tax on the profits garnered from resources extracted is guaranteed to enrage the Barnett Government in Western Australia, not to mention mining tycoons and lobby groups [PDF] such as the Minerals Council of Australia. The Opposition has not wasted any time in labeling the RSPT the government’s “second great big new tax”, but the key difference with this measure is that it is a tax that most Australians won’t be paying for.

In any case, if like me you’ve been sitting around wondering whether or not this tax is really the right thing for the country, this graph probably tells you just about all you need to know (p.47) [PDF]:

Graph

Surely it is only fair that the Australian people fare better out of all this plundering.

Injecting some nutrition into the GST

Like many of us, I suspect, I have a strong disposition towards eating significant quantities of chocolate on a regular basis, so I do have some vested interest in the so-called “fatty food tax” that is being bandied about as an option in the war on obesity. The Obesity Policy Coalition, which consists of Cancer Council Victoria, the Victorian branch of Diabetes Australia, VicHealth, and the World Health Organization Collaborating Centre for Obesity Prevention at Deakin University, proposes that an annual nutritional survey be introduced, and that the data gathered from this survey be used to drive the particular foods that the tax would target.

While conservatives are sure to baulk in quick time at the prospect of another tax being introduced and the government sticking its grubby nose into our shopping trolleys, I really do think that a tax-neutral scheme could work, work well, and better yet for the poll junkies in the Rudd Government, be sold effectively to a sceptical public. Tax-neutral, you ask? As Jane Martin suggests in the article linked above, what I believe would work best is for healthy foods (e.g. particularly fruit and vegetables, wholegrain-based foods, lean meats, etc.) to be subsidised by the government through a reduction in the rate of GST for those items, with tax reductions funded through corresponding increases in the rate of taxation on unhealthy foods (e.g. alcohol, sweets, high-fat snacks, soft drinks, energy drinks, etc.). Such a scheme would inject two powerful incentives into the market for people to think more carefully about the choices they make at the supermarket, and the sorts of food that they should be eating a lot of.

Making the scheme tax neutral cuts through a lot of the “tax rubbishing” that is sure to be done by the sorts of one-eyed ideologues who would be happy to drive their expensive cars through the undergrowth before they will contribute to a public roads system, or are happy to see the less well-off attend substandard schools and be treated as substandard hospitals because they don’t believe in public education or health systems. In short, such people are selfish mugs, and normally shouldn’t be given the time of day. However, they also shouldn’t be allowed to let their prejudices taint the perspective of everyday folk who just want the best for their families. Presumably there will also be costs to the economy involved in instantiating such a scheme, but I’m fairly certain that modelling of the scheme would produce long-term health benefits for the nation that dwarf the initial costs of its introduction.

This issue could be a quick win for public health; all that is needed is some analysis as suggested, what is likely to be some fairly gentle tuning of an existing tax measure, and the job is practically done. Mr. Rudd? Ms. Roxon?

The Rudd Government’s bribe program… I mean stimulus package

I must admit to having some mixed feelings about the Rudd Labor Government’s $10.4 billion stimulus package, announced today. On the one hand, there is certainly quite a bit to like about the package from a Labor point of view. It specifically targets those who are likely to be hardest hit during the trying economic times we find us in; namely low income earners, pensioners, and people trying in vain to buy their first home. It is courageous and decisive, and in effect has forged a bipartisan approach to the financial crisis. Politically speaking, it will no doubt be a big winner, particularly with Christmas fast approaching.

I also have some concerns about the package. Firstly, it must be noted that the stimulus package is being delivered for the most part in the form of lump sum payments to the electorate. In the past I have been highly critical of the Howard Government when it has delivered “taxation relief” through the bundling out of ad hoc lump sum payments, and thus it is only fair for me to call Federal Labor out accordingly on this occasion. Lump sum payments to targeted interest groups raise some serious questions about political expediency, and also whether or not the government is actively encouraging the electorate to spend the stimulus payments frivolously by delivering them in such a throwaway form. For a lot of people, handouts like these from the government feel like a free, one-off bonus payment, that it is okay to completely splurge away. These sorts of payments do not feel like “earned money” to such people. They feel like obligation free gifts, and effectively serve to distort the normal consumption cycle for taxpayers.

I suppose one rebuttal to this line of argument would note that the world is experiencing a financial crisis right now, and that therefore a program of lump sum payments now is justified. If the stimulus package was spread out as a form of weekly or fortnightly additional allowance payments to pensioners and low income earners, it would likely not produce the desired effect, which is to stimulate the economy now. This rebuttal leads us to a second possible criticism of the stimulus package; is it really necessary now? The Reserve Bank has just cut the cash rate by one percent. The stock market has been a bit up and down over the past couple of weeks, but there are signs just over the last couple of days that the situation is stabilising. Are we really in such a dire situation at the moment that blowing half the budget surplus on a series of handouts is justifiable? I can’t say I am too sure either way, but in the very least, it is questionable.

The third potential negative point that I think is worth considering with the stimulus package relates to our old friend, interest rates. It is fascinating to me how quickly the nation has apparently moved from a mode of economic operation where the government is actively trying to reduce inflation, to one where the government is frantically trying to stimulate growth through arguably inflationary policy measures. It is a point that has been alluded to by Opposition Leader Malcolm Turnbull, who seems to want to have a bob each way by pledging his support for the package but foreshadowing possible repercussions for inflation:

Opposition Leader Malcolm Turnbull backed the strategy and said it would help cash-strapped pensioners but noted it was fiscal concerns, not compassion, that had prompted the government to act.

He also questioned whether existing homeowners might end up bearing the brunt of the bonus for low-income Australians.

“We trust that the government has taken into account advice from Treasury and considered the impact that this stimulus may have on the Reserve Bank’s ability to continue reducing interest rates,” Mr Turnbull said.

So overall, it’s great that these payments look like they are going to go to the right people (for a change!), but it is almost impossible to deny that these lump sum payments have been inspired by a prominent chapter in the Howard/Costello book of economic management. Not to mention a prominent chapter in the Howard/Costello book of election-winning pork barrelling measures. That aspect of this stimulus package, even if it is somewhat unintentional, absolutely galls me.

A tax loophole by any other name

I tend to agree with Jennifer Hewitt when she suggests that it says something about the Rudd Government’s first budget when perhaps the most publicly contentious issue is an increase in the level of tax on “ready-to-drink” pre-mixed alcoholic beverages – beverages the mainstream media have cutely termed “alcopops”. Brendan Nelson even took the time to target the initiative in his reply speech in parliament:

Labor is giving with one hand and taking back with the other – and not just through kneejerk measures, such as a new Tarago tax on cars or the $1 slug on responsible Australians who happen to enjoy a pre-mixed Bundy and Coke or Scotch and Dry.

According to the Government, the principal cause and the source of binge drinking is the so-called ‘alco-pops’ and pre-mixed drinks.

A whopping 70 per cent increase in excise, we have been told, would make significant inroads into binge drinking.

The evidence does not support the Government’s deception.

I am not sure that the government is being deceptive, but what is certainly true is that Federal Labor has not done itself any favours by selling the policy in the way that it has. The government’s own budget overview describes the policy as a “price signal” designed to target binge drinking. While this is no doubt one potential justification, I think realistically speaking we need to consider the two other obvious incentives the government had for proposing this tax increase:

1) Alcohol in ready to drink alcoholic beverages is taxed at a lower rate than alcohol in standard beverages. This represents a tax loophole in anybody’s language.

2) The fiscal environment that the government is operating in has no doubt made it a challenge to fund all its desired spending commitments whilst still attaining the desired level of surplus.

Needless to say the Opposition will be bolstered by the usual blinkered suspects who doggedly oppose any measure that will result in an increase in taxation. However, even if it is true that the evidence suggests that the increase will have no impact on “binge” behaviour, it remains true that a tax loophole is being closed. In a period when constraints on spending are called for and there is a strong incentive to have a sizable surplus, it is in unequivocal terms economically responsible for the government to seek to close any taxation loopholes that exist.

Some may not like it, but the current excise arrangements for “ready to drink” pre-mixed alcoholic beverages represent just such a loophole.

ELSEWHERE: Christian Kerr comes in a very juddering way to the same conclusion, but portrays it all as a piece of spin and a “cover up”. When the realpolitik here is so obvious I am not sure that his breathlessness is warranted.