Mineral resources rent tax

Just few days ago Australian Federal Treasury revealed that the much contested, debated, and politically charged Mineral Resources Rent Tax (MRRT) netted exactly zero in government revenue in the first three months of its operation. This is to no surprise given the many concessions to the tax legislation that mining industry won prior to the enactment, and given the recent softness in profitability of the mining operations as a result of sliding prices of key commodities – iron ore and coal. The MRRT is genuinely a tax with desirable characteristics: it is profit based, which is why tax take will be low in times of low profits; it targets the very thing that society should aim for in minerals taxation – the resource rent; and it has good properties in terms of neutrality, risk distribution, and implementation. The problem is that the parameters of this reasonable taxation instrument were tweaked too much under the huge political pressure from the mining sector. The pressure came by propounding alarmist arguments to which the public, and ultimately the government surrendered. These were of the following description: mining tax will cost jobs, it will destroy the thriving mining communicates, mining investment will move elsewhere where costs are lower and there are no taxes, it is simply a robbery of the poor mining magnates by a greedy government. The result is a much diluted MRRT, which exists on paper, but not really in practice.
And this is neither the first, nor the last time we see that natural resource or environmental taxes do not achieve the objectives by which they were originally motivated. A recent study that colleagues and I completed (Ancev, Betz and Contreras, Ecol. Econ, 80:70-78) shows that an environmental taxation scheme in NSW has not resulted with significant reduction in emissions of nitrous oxides that could be attributed to the effects of the tax. Possible reason is that the marginal tax rates were set too low, most likely again under pressure from industry, and based on scary arguments that the tax will wipe the industry away. At least this tax, unlike the MRRT, brings revenue to the NSW government!

Author: Tiho Ancev

Tiho Ancev is a Professor of Agricultural and Resource Economics in the School of Economics, University of Sydney. His main research areas are agricultural, environmental, natural resource and energy economics. Tiho’s main contributions have been in water economics and policy, economics of energy, economics of air pollution and climate change policies, and economics of precision agriculture and agricultural input use. He has published widely on these topics in top international peer reviewed journals. Tiho has led and contributed to national and international research projects in these research areas. He is currently the Managing Editor-in-Chief of the Australian Journal of Agricultural and Resource Economics.