Harry Clarke

I’ve been in Sydney most of this week attending the Australia’s Future Tax System – A Post-Henry Tax Review. It had some excellent speakers and was for me – not a taxation specialist – very informative.  I particularly liked John Freebairn’s overview and a superb paper by Ben Smith which clarified my views on the resource super tax. My own contribution – joint with David Prentice – is on the road transport sector and is reproduced in draft format over the fold.  Comments are very welcome as the paper is now being revised. All the papers from this meeting will be published in a forthcoming book. The opening address by Ken Henry was characteristically forthright but in my view terribly misrepresented in blogs, the press and by commentators such as Warwick McKibben and others.  Henry was suggesting that economists get unreasonably cantankerous about second-order issues and, on climate change policy, I agree.  I’ve got some more substantial comments on this issue that I will defer. I have much respect for Ken Henry and on how he operates the Commonwealth Treasury.  He is a straightforward person with high intellectual honesty who has vast experience at dealing with government.  He is also amazingly knowledgeable on tax issues – hardly surprising given his background.

After listening to Ben Smith I’ve changed my mind on the resource super tax.  It is a tax grab but, if implemented as stated, will not harm exploration effort unless there is the assumption that imposing it raises future further sovereign risk issues. There is a slight interaction issue, detected by Professor Jack Mintz,  that means a non-neutrality will arise if the resource tax is imposed with a company tax but this is easily sorted out by making up-front cost refunds accruing to the miners non-taxable.  Otherwise the debate between governments and the miners is just a ‘cake-eating task’ – who gets what share of the cake?  The industry is lying about the distortionary effects on exploration of the tax to protect the stake in their firms owned by shareholders.  This might be justified – shareholder values will be diminished – but it is still a blatant distortion since exploration activity will not be inhibited.

The tax has neutral effects on exploration and the scale of the industry because its not really a tax but a 40% government shareholding in ventures with the government contributing 40% to costs as well as getting 40% of dividends.   There are efficiency gains in cutting royalties by eliminating them but refunding to the states from the Commonwealth’s income share these royalties.   I’ll refrain from correcting some misleading comments in earlier posts – that suggested non-neutrality with respect to exploration effort – and make a general mea culpa here.  When I get the time I’ll insert links between these correcting comments and the earlier posts. Continue reading Post-Henry Tax Review