TAX NEWS - JUNE 2010

Australia Tax: Tax is the price we pay for civilisation

THE Rudd government's move to introduce what it calls a resource super-profits tax on mining companies has generated, as you may expect, much debate.

One can see why such a tax would be an attractive to the government.

In very practical terms, it helps fill its coffers. In more principled terms, a resources rent tax (as economists like to call it) can improve the efficiency and equity of the tax system.

On the one hand, taxing "super-normal" profits made on exploiting miners is unlikely to lead to less investment, since it doesn't eliminate "normal" profits.

On the other hand, equity is enhanced since the burden of the new tax falls on high-earning multinational investors, and since the tax ensures all Australians receive a pay-off from natural resources that belong to all of us.

Yet some of the criticisms of the RSPT raise some interesting philosophical questions.

When Opposition Leader Tony Abbott said that a resources rent tax "would be robbing Peter to pay Paul" and involve a "kind of class-war envy", he pointed to a few things worth asking.

Is there something fundamentally wrong about governments redistributing wealth and income?

Is a government justified in being a leviathan-sized Robin Hood who takes from the rich effectively to give to the poor?

These are questions that obviously have relevance beyond a resources rent tax. They go to the heart of the political philosophy of tax and democratic government.

The Opposition Leader makes clear his hostility towards a more active role on the part of government in redistributing resources through tax.

We can only speculate whether Abbott has read Robert Nozick's Anarchy, State and Utopia. But the work is, without doubt, the classic libertarian critique of redistributive taxation.

Approaching the matter from the principle of self-possession, Nozick famously noted: "Individuals have rights so strong and far-reaching that they raise the question of what, if anything, the state and its officials may do." In his view, any attempt by the state to redistribute resources amounted to a form of coercion.

Taking a share of someone's earnings is to claim a share of the fruits of someone's hard work; it involves a form of forced labour.

The attraction of the libertarian critique lies in its parsimony: everyone should own their labour. So long as one makes one's earnings within the limits of the law, according to the rules of fair exchange, why should someone else get the proceeds?

Let us not be too hasty about endorsing the view that taxation, especially progressive taxation, is really just a form of theft.

After all, government revenues are used for common purposes, to help deliver public goods, that otherwise would not exist: think defence, law and order, roads, public hospitals, public schools.

In benefiting from such provision - which we all do - it seems only fair that we contribute our fair share.

Indeed, it is not unreasonable to demand that the rich among us should contribute to the common weal and in a proportion greater than others.

A good democratic society requires that we make sacrifices for others and to think not only of our own needs but also those of others. The redistribution of resources is a necessary part of this.

Progressive taxation, to paraphrase American jurist Oliver Wendell Holmes Jr, is the price we pay for a civilised society.