Policy Forum: Resource Rent Taxation--Experiences from Australia

Australia's community ownership of mineral resources and traditional value- or volume-based royalties imposed by regional governments in Australia's federal system set the scene for proposals to replace these traditional royalties with well-designed profit-based imposts. Such replacement offers better allocation of investment funds within Australia's mineral resources sector, including investment in marginal operations that would be unprofitable under traditional royalties, and full economic recovery of minerals. A recent Australian government proposed a cash flow tax of bold design incorporating delayed full loss offset (removing the risk, inherent in traditional resource rent taxes, of losing the value of expenditure deductions), as well as arrangements nullifying the effect of traditional regional government royalties. In the event, this bold design was not implemented, and one related insight is that full loss offset, viewed by one person as a crucial design feature for efficient outcomes, is a waste of taxpayer funds to another. Replacement of traditional royalties would require solid tax design coupled with meticulous and judicious consultation.