From BusinessDay:
... the ANC has responded [to calls to nationalise all mines] with a thoughtful report that considers ways for SA to use its mineral wealth to drive development. The report sensibly rules out the policy of resource nationalism endorsed by Malema...
Instead, the report considers ways in which mining profits can be redistributed more fairly. It advocates a resource rent tax of 50%. This would hit any profits providing a return on investment in excess of the long-term Treasury bond rate plus 7% — about 15%.
While the precise numbers would be subject to negotiations, the principle seems sound. It is right that a government should claim a share of the profits associated with extracting the resources discovered in its territory. A super-profit tax is a better mechanism than royalties based on gross production. This is because it helps to bring more marginal mines into production.
It is important, however, that this additional revenue should not be wasted. The government should use it to address S A ’s significant infrastructure deficit, ranging from an inadequate railway network to unreliable electricity distribution. These constraints are the main reasons SA’s economy has not been growing to its true potential.
The mining industry has been a political football for too long. If SA wants to flourish, it must make the most of the treasures beneath its soil.
The former PM of Australia suggested something similar, the result was that the monopolists toppled his government and he was replaced with the more compliant Julia Gillard, who shelved the plans, or at least watered them down. So best of luck with that one, South Africa!
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9 comments:
It is important, however, that this additional revenue should not be wasted. Advice follows
Yeah, politicians and not wasting money...
A super-profit tax is a better mechanism than royalties based on gross production. This is because it helps to bring more marginal mines into production.
I'm not sure what your thoughts are on this Mark, but doing it this way seems to be a transfer, not from super-marginal mines to marginal, but from efficient ones to inefficient ones. I also wonder why it is assumed that bringing more marginal mines into production is desirable. You don't want to be extracting resources when it's not actually necessary, surely?
Anon, agreed.
F, it's a maths thing. If SA knew exactly what e.g. the gold price is going to be far into the future, and if it knew what extraction costs for a reasonable efficient mine are, then a flat per-ounce tax is better.
But it doesn't know these things, and neither do mining companies, so it's no basis for negotiation. If the gold price rises, the flat tax would have to go up; if extraction costs rise, the flat tax would have to be reduced, and so on.
A mining super-tax (and there's no reason why it can't be 80% or 90%) smoothes over this.
The best way of doing it is for the government to say "That gold is ours. But we are rubbish at mining, so we'll pay mining companies to dig it out for us and handing it over".
Then you have an auction process, if Company A says they'll extract it for a fee of $100/oz and Company B says they'll do it for $80/oz, then B gets the contract, has a fairly stable revenue stream so can plan properly, and the government takes all the upside and downside of fluctuating gold prices.
Ahh, okay that makes sense.
I'd think that combo of a lease-auction and super-profits tax on top of that should collect most of the rent.
-Kj
Mark, the situation in Australia wasn't quite like that. Kevin Rudd was toppled by his own party for being a useless PM. His bungling of the mining tax was just one manifestation of that.
Also, a lot of the opposition in Australia to the mining tax wasn't to do with any particular love of the mining companies but more to do with the fact that mineral resource extraction is a state issue, not a federal one. Essentially it was none of his business.
Kj, yes, that is what most Western countries do. It's all a bit rough and ready, but a good example of Georgist taxes in practice.
Matt, maybe you know something which Julia Gillard doesn't. According to this article from November 2011, she is now hoping to introduce the mining tax, just at a lower rate than what Rudd proposed. If it was none of Rudd's business then surely it's none of hers either?
MW: Ofcourse they still bitch and moan if they haven't been subject to the tax before. The oil-companies seems to have learned that they haven't got a case, and accepts the higher rates of tax. I've superficially read the debate in Australia, and it's the same as everywhere. The hydroelectric-companies complained when the super-profits tax was added on them here, saying future plans would be shelved, and "local communities would suffer". Ofcourse nothing of the sort has happened. No super-profits, no tax. If they were to rightfully complain about taxes, they would go after VAT and electricity tariffs, that by far takes the largest cut.
-Kj
Kj: "The hydroelectric-companies complained when the super-profits tax was added on them here, saying future plans would be shelved, and "local communities would suffer". Of course nothing of the sort has happened. "
Exactly. A government can tax monopolies or land values as much as it likes, and nothing terrible happens, why would it?
That's the funny thing, Western governments in general and the UK in particular have very Georgist taxes in some regards - oil extraction, radio frequencies, fancy number plates, commercially used land, petrol duty, withholding taxes on royalties etc and all these things raise money without affecting behaviour particularly.
It's just that they refuse to accept that exactly the same principle applies to residential land.
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