“Super Profit” tax is a tax on success and effort



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The Rudd government is making the assumption that a so-called “super profits tax” won’t deter investment. But to tax major success is generally to tax real and often unusual effort.

Below is a letter to the editor that was published in The Australian Financial Review on Thursday , 6 May 2010.

Dear Sir

A so-called "Super Profit" tax is a tax on success and effort. It is also quite alien to the spirit and letter of the Henry Report.

The Rudd government is making the assumption that a so-called "super profits tax" won't deter investment. But to tax major success is generally to tax real and often unusual effort.

Most investments and certainly explorations and innovative uses of new technology are undertaken in the hope that one will be highly successful. There is always a wide array of possible outcomes -but hopefully an occasional bonanza that drives the investments of shareholders and importantly pension funds that we all must hold.

The proposal to tax those that are most successful is a tax in fact on all prospective and uncertain investments, not a tax on so-called pure economic rent.

And to define a "super profits tax" as a tax on rates of return in excess of long term government bond rates is beyond belief, and not something contained in the Henry Report.

Pure rent - as with a mythical infinite stream of spring water that flows from the mountain side - is largely a fiction but is certainly obtained by those who would  expropriate others success after the event.

One solution that does make sense where there is  known prospectivity of national resources, is to auction rights owned by the state. But once the market price has been paid to explore and develop resources there should be a uniform tax regime for all investment.

While there are examples where such a "rent tax" can make sense, the proposed "super profits" tax is a tax on all uncertain (i.e. most) projects and will send capital investment elsewhere.

Sincerely

Michael Porter

National Research and Policy Director
The Committee for Economic Development of Australia CEDA

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