After the GFC, the Australian Labor Party led by Kevin Rudd stimulated the economy by splashing cash. As a result, the Australian government created debt that needed to be paid off. The opposition Liberal Party criticized Labor for its reckless spending, but in this year's Commonwealth Budget the government announced it plans to be back in surplus soon thanks to a tax on the reosurces sector called the resource super profits tax (RSPT). Any mining projects in Australia will be taxed at 40 per cent above the 10-year bond rate.
The proceeds of this mining tax will be used to fund a reduction in the company tax rate from 30 per cent to 28 per cent. It will also be used to fund a range of other expenditure items, including benefits to small businesses.
Even though companies will get a reduction in company tax rate, the reduction from 30 to 28 per cent is miniscule. Furthermore, companies will be faced with the increased burden of a higher rate of superannuation it has to pay to workers (from 9 per cent to 12 per cent). The government is currently trying to buy favor among miners by giving them a infrastructure fund that will be used for spending on mining exploration and the like. This is horrible! Why would you take money from someone with taxes and then give that money back? Even if you take $100 from someone and then give that person $100 back, this creates a net loss for the economy because of administration burden plus other inefficiencies.
I am all for fair tax, but this strikes me as unfair. Based on what I have learned in university, the best kind of taxation is one that is difficult to avoid and is broad-based. A tax like the goods and services tax (GST) is an example of a good tax because just about everyone pays it when they purchase a product (ignoring, of course, the exemptions in current GST law on certain food). A flat income tax is good. Land tax is also excellent. A poll tax is probably the best kind of tax, although historically poll taxes are very unpopular.
However, the RSPT is not broad. Rather, it is very narrowly focused on the mining sector. The mining sector is hit by this massive tax on super profits while banks do not pay a super profit tax. The Labor government argues that these non-renewable resources belong to the people and hence the people must get their fair share back. This is all well and good, but if the principle of taxation is to tax those that use natural resources, why aren't farmers slugged with a super profits tax for their exploitation of the land? Why aren't home owners slugged with taxes for using their land they live on? Rather we see massive tax exemptions given to home owners and farmers.
The RSPT is also very worrying in that it creates an atmosphere of uncertainty. If the Australian government can just implement massive taxes on a whim, who is to say the mining sector will be the only victim? You may not think the mining tax affects you maybe because you are heavily invested in banking shares rather than mining shares. But given that Rudd has shown that he is willing to slug a massive tax on anyone who is successful, who is to say he won't start applying a tax on banks next? If a gunman enters a room and shoots the person right next to you, you would be scared because this gunman is clearly has murderous intend and just as he has shot and killed your friend he could easily shoot you. Likewise, Kevin Rudd is a like a gunman, shooting sectors of the economy with taxes. You may be lucky now but who is say that in the future he might not slug a tax on you or your investments? Think you can run away from the tax by putting your money into gold? He might put a tax on that. He might do anything. The extreme would be some kind of tax on men because they earn more than women. The idea of a man tax has actually been suggested by some people.
I am not anti-tax. I think tax is essentially because government needs money to provide essentials to the public. But why can't the government just reform the tax system by levying a simple and fair land tax or a simple and fair income tax? These various exemptions and deductions that exist in current taxation legislation do nothing but divide citizens.
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