Executive summary
In order to meet the challenges, overcome social outcomes and enhance its economic growth, Australia has to restructure its tax and transfer systems. As the nation keeps on restructuring its tax arrangements, it ought to make sure that its standards are unrelenting, strong points are preserved and all the pledges are accomplished.
Indeed, the new world economic order that is characterized by increased competition, international integration, increased opportunities, changing businesses, commerce and personal services through technological advances poses a greater challenge.
Besides, Australia is now faced with domestic challenges that include aging population, increased cost of health, care for the aged and increased population among others. This calls for an expanded economic infrastructure, education, health and social amenities. It must also be assumed that the country will incessantly present elevated risks of clashes which will result into higher costs of security provision.
As a result, the prime undertaking of the kingdom of Australia is to get a hold of transfer tax scheme that look forward to and has the aptitude of acting in response to these prospects. Much of the most recent century main architecture of the existing tax transfer structure still hypothesizes the sound procedural outline which articulates the ethics of the Australian nation.
In fact, much of the tax reforms that have been undertaken in the last few decades have reflected this sound policy framework. One of the reformed tax laws is the mineral resource rent tax that was established to provide a framework together with core rules that would be used to tax miners who persistently ensue to be making abnormal profits.
This paper will be reviewing the mineral resource rent tax bill by taking cognizance of the principle concepts and component of the legislation. The piece of legislation will then be analyzed using the economic concepts and theories focusing on monopolies and their tax practices as applicable in the global context.
Introduction
There are several complicated ways of achieving multiple policy objectives through the utilization of tax and the transfer system. The operational platforms in conjunction with the governmental competence of these tax schemes, that is, the human resources needed to handle any involvedness which might take place has surpassed the leading edge.
Overstraining the transfer and tax architectural designs significantly added to its breakdown in dealing with various guiding standards, aims and demands both resourcefully and successfully. The tax and transfer architecture rationalization should currently be the center of focus and a priority to the policy makers (Asimakopulos & Burbidge 1974, p.268). In reality, any revenue raising strategies are supposed to be concentrated towards the four forceful tax bases.
These include personal income that should be evaluated on a more wide-ranging basis, the business income that should be more growth oriented, private consumption that should apply a wide range of simple taxes and the economic rent that is got from land and natural resources whose basis should be comprehensive (Baily 1995, p.71).
One important thing that should be noted is that income from rent taxes are extremely volatile as compared with the existing resources royalties that would be replaced.
Efficient taxation of resources and land
Basically, the revenues accruing from the production factors which are deemed to be stock-still comprise the tax base which is regarded to be more resourceful and valuable. According to the proposed amendment bill, a rent based tax will ensure just the right quantities of extraction and levels of exploration.
Moreover, the rent based tax will encourage more participation from the private sector. On average, rents from a high value resource will likely in the long-run cause increments on revenues than the output that is based royalties (Laramie & Mair 2000, p.56). Numerous systems are applicable to the rent founded taxes but the most decisive is often dubbed as the transitional arrangement.
Expansively founded property or land taxes are all the time regarded as the most proficient and effectual. The current natural resources and land taxes are inefficient simply because of their narrow considerations.
In other words they are not broad based and their rates are determined by the land use such as extraction processes as well as the landholding aggregation rules (Laramie & Mair 2000, p.56).
The land tax is considered to be efficient if it is universally applicable. In addition, the land tax should have an aggregate holding. Nevertheless, it can have a dissimilar rate or threshold anchored on the cost or worth of every patio gauge of the property or land.
Practically, land that has low value use would not be liable to land tax and the rate would be moderate to average users. The interim rules will be significant in ensuring the changes in which the land taxes are based so as to harmonize the valuation effects as well as to offer sufficient spell to those who seem to have been upset to create amendments in their capital funding in the property.
With exemption of low prized merchandises, the prevailing royalties ought to be substituted with the venture founded unvarying rent tax resources. Besides, Baily (1995, p.71) claims that the taxation of the resources is duty-bound to incorporate the symmetric management of any accruing loss and must be further anchored on investment allowances as opposed to the evaluation of the cash flow.
This implies that with suitable and ample taxation guidelines, the novel tax is bound to be applicable to both already existing as well as the new-fangled projects. In essence, the current taxes which touch on the natural resources ought to be replaced subject to slow evaluation and long transition.
This will facilitate holding adjustments. The adjustments should also be applicable to all regardless of the type of resources that are being extracted (Asimakopulos & Burbidge 1974, p.276).
The implications of the mineral resource rent tax bill
The implications of the MRRT can easily be understood from the post Keynesian tax incidence theory advanced by various scholars. The effect of implementing the MRRT will have no effects on the mining profits within the short period of time.
This is according to Asimakopulos and Burbidge who indicated that the government implementation of higher taxes on profits and spends that revenue obtained from the tax increases; the post profit will be unaffected when the short period of equilibriums is established.
In this analysis the balanced budget multiplier plays a critical role and the result is true in both non-competitive or in competitive market conditions (Asimakopulos & Burbidge 1974, p.271). However this analysis only considers short- term periods.
In considering the effect of such taxes on investments over longer periods, several theories have to be considered. For instance, in analyzing the long term effect of tax incidence on income, the Kalecki theory of taxation is integrated with other elements of the Kaleckian economies.
That is in analyzing the long-term dynamics of taxation, it is essential to link theories of income, profits, wages, investments and business cycles. According to Kalecki all the tax incidences would be determined by the behavior of investments (Tomara 2011). That is changes occurring to the current taxation would impact on future investments hence future profits.
There are two channels through which taxation affects investments. One of the channels is depreciation. The rate of depreciation changes the relative profitability of new and existing plant and equipment. With constant improvement of technology increased taxes on profits will have to decrease the real profits of old equipment compared to new equipment thereby accelerating obsolesces.
New investments are thus encouraged. The second channel is the level of profit (Tomara 2011). The taxation effect on the profit levels is also determined by two channels. That is the effect of taxation on the government budget as well as the impact on the income distribution
The effect through the government purchases is the effect on the balance budget multiplier and not worth considering under this analysis (Tomara 2011).
However the effect through income distribution depends on how shifts in taxation results from firms changing their markup (wages and profits) in response to the structural changes n taxation policy. The degree to which these changes will occur depends on level of monopoly
From the post Keynesian analysis, it can be deduced that average tax rate is essential. In addition it is essential that economic incidence of taxation be explicitly taken into consideration while determining the tax incentive effectiveness.
Moreover, considerations must also include equity efficiency as well as effectiveness (Asimakopulos & Burbidge 1974, p.276). While drafting the MRRT the government did not put a lot of consideration on these economic issues. However, the industry players must be aware of the implications of taxes on their super profits from this perspective.
Looking at the implications of the taxes from a different perspective will produce almost similar results. That is from the economically optimal taxes on commodities. The economic optimal taxes on commodities will only apposite the economic rent that the factor of production earns.
Economic rent is the surplus that is earned by the factor of production in excess of the cost of work that the factor does (Laramie & Mair 2000, p.57). In other words, economic rent is the surplus earnings over the amount that is needed to keep a factor of production in its current work. This definition applies to all natural resources that have no any other use if left untapped.
Proper analysis of economically optimal taxes on natural resources indicates that the economic rent is only due to the unique nature of the natural resources deposit. Since it is in accordance with the perfect competitions within the, it is therefore different from monopolistic profits (Tomara 2011).
Theoretically, the economic rent will be taxed without having effect on prices as well as output so long as marginal revenue and marginal cost remain unchanged. Practically, the natural resources can only be exploited through the use of other factors of production that includes labor, entrepreneurship and capital.
Therefore, the government should thrive to set the minimum rate of return that would be needed to set the transfer earnings. Transfer earnings are what will be used to decide the transfer of factor from different uses. Economic rent is the earnings that is above the transfer earnings (Asimakopulos & Burbidge 1974, p.277).
The economic rent can be taxed without having an effect on efficiency allocation. Moreover, economic rents will tend to be higher during short periods compared to the long-run since in the short-run the capital is fixed.
The taxation of short run rents would in effect prevent further explorations and development of the natural deposits. Therefore the allocating efficient taxes would only be appropriate in the long-run.
In situations where the players in the industry have control over prices, then the mining fields will earn the monopolistic rents or monopolistic super profits. Principally the monopolistic profits will also not change the level of output (Tomara 2011).
Practically, the calculation of maximum tax that would be required considering the monopolistic rents need an accurate knowledge of all factors comprising of the cost functions, prices per unit output, the rate of production as well as the rate of the normal profits.
In case the production yields negative externalities such as the pollution, the taxation can still be used to reduce the rate of output through appropriating excess of economic rent. This would reduce the production in the long run and comparatively be seen as the direct regulation solution.
Direct government regulation of production would dispel economic rent thereby decreasing the amount of resources that can be taxed (Laramie & Mair 2000, p.57). The regulations administrative cost and revenue loss would have an effect on the welfare of the people.
Implementation process
The implementation of any tax policy will need the decisions of all the intergovernmental level together with all other stakeholders such as the industry and will need comprehensive appraisal of all the financial implications. Moreover, the reforms in tax policy will be pursued together with other macro-economic policies in order to achieve its goals.
In most cases, the tax reforms with an aim of long-run benefits would always be implemented after detailed considerations and at appropriate times (Laramie & Mair 2000, p.57). Moreover, the state control is obliged to be very elastic particularly when practicing transformations in line with the macroeconomic as well as monetary situations.
Many industrial players have arranged their priorities according to the existing current policies. Therefore, any policy change must be in a position to confront such a challenge. This is because the adjustments are always costly and require some time.
To those who find adjustments to be costly, some provisions have to be made for their welfare (Asimakopulos & Burbidge 1974, p.281). These possibilities are not always within the tax policy framework rather are encountered during the implementation process.
Conclusion
The aim of the review is to find out whether the future architecture of the Australian mining tax and transfer system is attainable and in accordance to the goals and values that the country is striving to achieve. Nonetheless, the analysis indicate that the draft bill did not explicitly take the economic and taxation theories into consideration.
However as an instrument of government policy it reflected the goals and aspirations of the general policy guidelines. There are some correlations amid the policy of tax transfer and the policy guidelines of the other government especially the regulatory authority and the state expenses.
The future benefits of the MRRT will depend on the theoretical framework that forms part of its fabrics as well as the externalities that may be incurred by the industry.
References
Asimakopulos, A. & Burbidge, J. 1974, “The short period incidence of taxation”, Economic Journal, vol.84, pp 267-288.
Baily, S. 1995, Public sector economics: theory, policy and practice, MacMillan, New York.
Laramie, A. & Mair, D. 2000, A dynamic theory of taxation: integrating Kalecki into modern public finance, Edward Elgar, Cheltenham.
Tomara, J. 2011, Mineral resource rent tax bill, 2011. Web.