06 June 2010

Freebairn on the resource rent tax

There is a fun thought experiment you can conduct on the basis of a recent remark by distinguished economist John Freebairn, Ritchie Professor of Economics at Melbourne University (see Melbourne University profile of Professor Freebairn here), who was one of the key consultants in the design of the resource super profits tax (RSPT).

A piece in The Weekend Australian Financial Review, 29-30 May 2010, (Why an economist loves this tax... by Patrick Durkin) states:

Freebairn guesses only half-a-dozen experts and economists in Australia would intimately understand the workings of the super profits tax.

The fun is in considering who these cognoscenti might be, and who might be left outside that charmed circle.

First, consider the fact that Freebairn was a signatory to a statement by 20 economists that came out in support of the tax during the preceding week (see text of Statement and list of signatories here).  Freebairn seems to be saying that at least fourteen of his co-signatories did not really understand what they were signing.

Second, let us try to figure out who the six cognoscenti are.  Presumably Freebairn himself is one, and Ken Henry another.  Apart from Ken Henry there were four other members of the Tax Review Panel. If we include all of them there would be no room for anyone else. 

That leaves no room for the Prime Minister, the Treasurer, Resources Minister Martin Ferguson, Finance Minister Lindsay Tanner or Deputy Prime Minister Julia Gillard.  They wouldn’t try to sell us something they didn’t really understand, surely?

And what about the senior Treasury official, Executive Director (First Assistant Secretary) David Parker, who is chairing the Government’s consultation panel? 

And the people at KPMG Econtech who did the modelling that showed that the resource industry would grow after this substantial tax was imposed on it?

We seem rapidly to run out of room, and can only conclude that numbers of people who have played a key role in the design of this tax, and the decision making and advocacy thereon, do not really understand what they are doing.


Taylor said...

I'm guessing he's referring to the handful of Australian economists who published on this starting with Garnaut and Clunies-Ross, then Ben Smith and George Fane, Craig Emerson, and possibly himself.

So no-one at Treasury and only one person in the government.

Daniel Ho said...

Interesting... especially given the hole the Government has dug for itself in pushing for this tax.