Article from Brisbane Courier Mail by Tim Hughes director of 'Value Capital Management'
i think he hits the 'nail on the head' with this.....
"I HAVE reluctantly come to the conclusion Kevin Rudd is our most economically illiterate prime minister since Gough Whitlam. While Gough was our greatest social reformer, he just wasn't interested in economics and it was his downfall.
The Prime Minister's resources super profits tax is, without a doubt, the worst tax decision ever made by an Australian government. And the day after announcing it he could not even explain how it worked.
That is the only way that this makes any sense at all; only a government that simply does not know what it is doing would do something as outrageous, as damaging to our long-term interests as this BAD tax.
This is a tax designed by economists who assume that they know how business makes decisions. They have no idea, just no idea at all. For them so-called super profits cut in once a company has achieved a return on invested capital equal to the 10-year bond rate, a meagre 5.47 per cent.
If that was truly the case our resources companies would be better off putting their capital into bank term deposits. These are not super profits, they are not even ordinary profits.
The resources sector is so risky, prices so volatile, technology risks so high that the types of returns that companies require to invest hundreds of millions, if not billions, of dollars are more like 15 to 20 per cent rather than 5.7 per cent.
Except for sin taxes on things like tobacco, a good tax is one that does not change or distort the behaviour of the taxpayer.
This was the original thesis behind taxing the rent of true super profits of mining companies as advanced by Ross Garnaut in the 1970s.
You tax the profits above the full level of return that the resources companies need to justify the huge risks they take.
To tax returns at any lower level is to fundamentally change the investment behaviour of our resources companies. That means less investment, fewer jobs, weaker export earnings and, in the long term, lower taxation receipts from the industry not higher ones.
How smart do you need to be to understand this?
But clearly Kevin has no idea.
Our high standard of living is ultimately dependent upon what we sell to the rest of the world.
Our most important export industry by a country mile is the resources sector.
All those tax cuts over the past few years have been paid for by the resources industry, a large part of our economic recovery over the past year has been because of massive investment in the resources sector. Our long-term economic future is critically dependent upon the resources sector.
Which part of this does our Prime Minister not understand?
None of this is to say that the resources sector should not make a greater contribution to our public finances when returns are truly exceptional, but the design of this new tax is absolutely outrageous and runs directly counter to the long- term interests of all Australians.
Tony Abbott is no economic genius but if he can stop this piece of madness we should all be very grateful."
