The call for a windfall or royalties’ tax on existing producers is reprehensible and should be condemned in the strongest terms. Why – because it amounts to theft from those who (directly or indirectly) invested their hard-earned into companies that explored for, mined, and/or commercialized the reserves and so took the associated operational and market risks. Surely, we’re better than that. Classic Liberals Australia will not support a windfall or royalties’ tax on existing producers.
Classic Liberals Australia will also not support a flat royalty tax or similar on all new projects. Why – because mining projects have different levels of commercial viability. Some are only viable at much higher commodity price levels than others. So, imposing a flat royalty tax will increase the commodity price levels at which the projects become viable, resulting in more not having sufficient economic merit to pursue. Without the royalty tax, more projects would be get the go-ahead, employing many more people, increase Australia’s exports, and strengthen the Australian dollar and pay income tax.
Classic Liberals Australia is also not supportive of a resources tax, one based on profits. Why – because a great deal of risk, effort and ingenuity is needed for a commercially viable mining operation. Those that take the risk, put in the effort and are ingenious enough should get the rewards, not those who have not. For example, there are plenty of gas and mineral reserves within our borders that are not commercially viable. If someone bright finds a way to make those reserves commercially viable, does the hard work and takes the operational and market risks, they should be entitled to enjoy the profits. The rest of us have no justification for claiming a share of their profits.
Gas and other minerals have existed within our borders ‘for ever and a day’ and left untouched for millennia because the people at the time didn’t know they were there. Then once the people realised reserves may exist, they didn’t have the smarts to find those reserves or the smarts to extract them in a commercially viable way. So, it is a fallacy to argue that because the reserves are located within our borders, we ‘own’ them. We, as a nation, didn’t take the risk, didn’t put in the effort and the success of any project was not due to our ingenuity.
What about a windfall profits tax? Classic Liberals Australia will not support that either. Why – because when companies their investors consider whether to pursue projects, and which to prefer over others, they consider pessimistic, most likely and optimistic scenarios. These scenarios are based on various assumptions, including assumptions as to sale prices. They come up with what they believe is a realistic price range, and run their numbers, their financial projections, at both the top-end and bottom end of that range. If those projections show a far greater prospect of success than failure, they are more likely to go ahead with the project. If they go ahead with the project and due to lower-than-expected prices, it is a disaster, making big losses – do we, as a nation, pay them anything, do we compensate them for their loss? No, we don’t. Since we don’t, we can’t justify claiming a share of their ‘windfall’ profits if the project is a great success. Bear in mind that companies have to pay income tax on their profits, so windfall taxes are additional taxes.
As a final point, we should not lose sight of the fact that mining contributes enormously to our economy. That industry pays far more in income tax than any other industry, it employs many thousands of people and is our main generator of foreign currency. Without it we’d be in serious trouble – economically and socially. We need to encourage mining, not discourage it.