Attacking messengers

The Henry Review has done the right thing and has at least reviewed the literature in justifying evaluating of the RSPT. One paper was by Kevin Markle and Douglas Shackelford published by the NBER last year. That paper demonstrated that effective tax rates in the mining industry in Australia were lower than tax rates elsewhere. From what I can see, it is a solid piece of work and exactly the sort of thing that we want governments to take into account when conducting evidence-based policy.

That very same paper prompted an extraordinary attack by Andrew Robb, who is the opposition spokesperson for Finance.

But on Monday morning, the opposition said the bureau paper was actually produced by a ‘graduate student’ in the United states under the supervision of his professor.

‘It’s a very shonky piece of work, it’s amateur hour,’ Mr Robb told reporters in Canberra.

‘Some young bloke’s done his best but it’s a joke.’

The paper found domestic mining companies paid an effective company tax rate of 17 per cent in the period 2003 to 2007. Multinationals in Australia paid just 13 per cent.

Royalties and payroll tax weren’t examined.

Mr Robb said the treasurer should apologise for ‘denigrating the icons of Australian industry solely on the basis of an academic paper by a graduate student from North Carolina’.

Wow. This displays such an astounding level of ignorance that it is beyond belief. First, the paper is co-authored with a leader in the field and so is hardly some isolated bit of student work. Moreover, how does he know who did the work? That appears a baseless assertion. Second, as a result, the paper was put out as a working paper by the NBER. You don’t get to be an NBER associate easily. What is more, the NBER has, as part of its DNA, to place a dispassionate view of the facts without policy advocacy. I should know. I am visiting the NBER at the moment and this gets told to us at every opportunity for anything the NBER publishes. Third, that really means something. The NBER’s existence is to provide evidence to assist in policy-making. It has done it for many decades and is by far the most respected economic organisation in the world. And it is hardly made up of amateurs.

Finally, couldn’t Andrew Robb just read the paper and be specific on his criticisms? He does apparently have an economics background. Perhaps he could explain where the regression equations are faulty and how it could possibly matter that payroll tax is omitted as the important part is to compare tax rates for companies, all of whom are subject to payroll tax and few of whom are as capital intensive as mining. Perhaps he could explain that he now considers royalties a tax? And perhaps he can explain why he only now started critiquing this research that was in the Henry review in the first place?

I am left to conclude that there is little hope for evidence-based policy recommendations coming from the Coalition when the Shadow Minister for Finance is unable to review the evidence. Part of me hopes that some aspiring graduate students will consider entering politics in Australia so as to raise the bar.

[Updated: Sinclair Davidson points out that in the revised version of the paper, the authors no longer report the specific mining industry effective tax rates. They include all results in regressions but only cells with 20 or more observations are reported. I’m not sure why they restrict themselves there and I am not sure why Australian mining falls below that anyway. Over 19 years and we have more than one miner. Sadly, this wasn’t asked of Professor Shackelford in his ABC interview. The point is that we could all use a little more information on that specific number but that doesn’t matter one bit for the debate regarding whether this analysis was credible or not.]

9 thoughts on “Attacking messengers”

  1. I wasn’t going to comment as I have nothing to add, but the captcha for this comment is “andrews abilities” and that was too good to pass up.

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  2. For the government to start quoting this paper to justify the mining tax is nothing but a twisting of the figures: how can the government comment on the costs currently born by the mining industry without mention of payroll tax and royalties?
    The merits of the paper should be attacked if need be; but more importantly, it is the government’s deception of the public needs criticising and highlighting. And Robb has done just that.

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  3. That’s funny.

    You attack Sinclair Davidson for refering to a version of the draft paper you state is out of date (2010), but make no comment on the fact that the Treasurer of Australia used a version of  the draft paper that was even older (2009).

    Do you have any comment on the fact that the Treasurer of Australia with the entire resources of the government behind him either couldn’t find the latest version of the draft report, or deliberately chose to mislead and deceive by using a version of a paper since amended by the authors?

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  4. Hi Joshua – the papers that you and I link to are both dated 22 March. The 1 April date you’re looking at is the date it was presented at a conference. I have both the latter papers, but the one you link to about 8mb and the one I link to is a lot smaller.

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  5. I think Robb’s comments were a response to the Government’s latest line that miners only paid an effective tax rate of up to 17%, which is clearly a misleading figure, and which the authors agree is out of context.
    Both the Opposition and the Government have given a misleading reading of this paper, so its not quite fair to hold one party to a particular standard and not the other.

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  6. Given Sinclair’s ridiculous exercise in guilt by association and anti-intellectualism on the Drum (“Economic rent has its origin in the labour theory of value… a construct of a failed economic theory”;”Textbooks are about pedagogy; not real life.”) he is hardly in a position to demand accuracy from anyone else.
    Hey Sinclair, the classical economists also wrote about the efficiencies from the division of labour and the principle of comparative advantage – can we toss them out the window too?

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  7. Peter asked for comment on the Treasurer noting a 2009 draft version of the paper. This is the version of the paper that was noted in the Henry review, which reported in December 2009. So the 2009 version would have been the latest available to the Henry review. It remains the latest available that separates out the mining industry.

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  8. @Andrew1 I am not defending the Henry review’s use of the paper but I don’t think it was a problem. If you have a problem with the argument of the Government then that is what you should say. It is clear that Andrew Robb decided to attack, in a completely unfounded way, an irrelevant target.

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