A West Australian economist has conflicting views about a controversial plan by the Greens to introduce a mining super profits tax.
The Greens have announced part of their proposal for next week’s federal budget, which includes a 40 per cent tax to mining companies, as well as a minimum tax rate for those earning more than $300,000 per annum.
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University of Western Australia Professor Paul Crompton says there are risks associated with the idea but a similar tax system has been highly successful in Norway for decades.
“The oil revenue coming into Norway is taxed at 78 per cent by the government and that money is then put into a sovereign wealth fund,” Mr. Crompton says.
“The sovereign wealth fund makes investments all around the world and a lot of that money is invested in US assets.
“Last year alone, Norway’s sovereign wealth fund made profits of $130 billion in one year and that money can be used to fund welfare, social security, education and public health all over the country.”
Professor Crompton also believes Norway’s sovereign wealth fund has prevented them from falling victim to “Dutch disease”, a term he says best describes Australia’s economic downfall.
“Dutch disease occurs when a country goes through a boom and that’s exactly what happened in Australia’s last mining boom.
“The value of the Australian dollar went from about 60 US cents to $1.08 and when that happened, exporters in Australia were harmed by exchange rates because they’re product became very expensive to buy.
“A lot of those businesses that were exporting in Australia closed down or shrunk in size then when the boom was over, those companies didn’t come back.
“In Norway’s case, they collected US dollars but invested those US dollars overseas without bringing them back into the country so that didn’t affect their exchange rate.”
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The Green’s proposal is designed to limit high-income earners from avoiding tax, with the Greens estimating a current loss of $8 billion each year.
Professor Compton says the idea may sound good in theory but it should be rigorously analysed before pursuing.
“Norway’s oil industry was developed from the very beginning with heavy government involvement and government taxation but simply whacking a tax on mining profits in Australia could have adverse effects,” Mr. Compton says.
“If the mining tax was introduced, you’ve also got to the think carefully about how the revenue is going to be used.
“Norway has the right model of putting the money into the sovereign wealth fund and investing that money so it is available, not just for the current generation, but for future generations.”
The federal budget is scheduled to be released on Tuesday, May 8.