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Type: Journal article
Title: Have mining royalties been beneficial to Australia?
Author: Ergas, H.
Pincus, J.
Citation: Economic Papers, 2014; 33(1):13-28
Publisher: Wiley
Issue Date: 2014
ISSN: 0812-0439
Statement of
Henry Ergas and Jonathan Pincus
Abstract: The “Henry tax review,” Australia's Future Tax System (Commonwealth of Australia, Department of Treasury, 2010), recommended that royalties be abolished and replaced by a resource rent tax. Regarding abolition, AFTS drew on KPMG Econtech (2010a) (, a major report commissioned by Treasury to investigate the efficiencies of a wide range of Australian taxes, using MM900, a proprietary CGE model. That report estimated that the average excess burden of royalties and crude oil excise, taken together, was 50 cents per dollar of public revenue, and that the marginal excess burden, at 70 cents, was the highest of all imposts except those on gambling. We argue that the KPMG Econtech long-run comparative static framework was inappropriate for policy purposes. By ignoring that mining is largely foreign owned, the model missed a large “rectangle” of gain – which we calculate using a partial equilibrium model. More fundamentally, the finding that royalties do harm is difficult to reconcile with the widely accepted claim that a rise in the terms of trade is beneficial. Using a partial equilibrium model, we conclude that royalties are likely to have brought substantial benefits to Australians, and that higher royalty rates would have increased both economic welfare as well as public revenue.
Keywords: excess burden; Henry tax review; mining royalties; foreign ownership; KPMG Econtech
Description: This is a drastic revision of a paper given at Australian Conference of Economists 2012, Melbourne, Victoria, July 8–12, 2012.
Rights: © 2014 The Economic Society of Australia
RMID: 0030021583
DOI: 10.1111/1759-3441.12068
Appears in Collections:Economics publications

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