Hypothecation call does not stand up
letter published in The Australian Financial Review, 31 May 2010
Your chief political correspondent, David Crowe, reports without comment that the government claims that the RSPT receipts “would pay for cuts to company tax, an increase in superannuation contributions and tax breaks for small business” (“Labor MPs demand details”, May 26).
Crowe omitted to mention the “vital” infrastructure that Treasurer Swan includes but also reports that, instead of addressing the Minerals Council annual dinner next week, Prime Minister Kevin Rudd will speak at a Labor event, presumably to respond to the calls from Government MPS for “better information” justifying the Treasury’s new tax.
It is a pity, though, that our leading financial paper has not put the financing issue to rest.
In writing as the former Treasury deputy secretary, I can say that reductions in business taxes and expenditures on infrastructure, let alone superannuation, are not dependent on revenue from the RSPT. The estimated $3 billion from RSPT revenue in 2012/13 , for example, could readily be obtained by reducing total projected expenditure of $381 billion in that year by 0.7 per cent. For the next year the reduction in spending would be 2.3 per cent (or $9 billion).
Examples of reductions in spending that would improve the efficiency of government spring readily to mind. Why not divert the $5.5 billion remaining in the wasteful school building program, reduce spending on inefficient renewable energy programs, and even withdraw the $307,000 to the Australian Football League for promoting Aussie rules in South Africa and Australia’s claim for a Security Council seat.
In short, the hypothecation argument does not stand up. Savings could also be made by eliminating from the RSPT the government guarantee on losses incurred by mining companies.
While no estimate is given for such losses, it is surely totally wrong for taxpayers to fund losses in any industry, let alone mining. The moral hazard would invite the same kind of “investors” as participated in insulating roofs and building schools. But this danger seems overlooked.
Crowe has certainly got it right, however, when he notes Senator Xenophon’s criticism of the quality of the debate.
Des Moore
South Yarra, Vic