I’ve written recently about the desirability of a resource rent tax for Australia. However, it’s not a simple issue and there are some potential pitfalls. Possibly the most important of these is the risk that governments will become addicted to the revenue and will loosen restrictions on resource prospecting and extraction in order to maintain or increase revenue. There is clearly a conflict of interest when government is both responsible for ensuring environmental standards as well as benefiting greatly from the revenue from approved projects. We already see this playing out in Western Australia where Colin Barnett actively advocates for big resource extraction projects.

This type of conflict of interest also exists with respect to state government reliance on the proceeds of gambling taxes. While theoretically wanting to address problem gambling, many state government budgets would be in serious trouble if this goal was achieved. In 2010/11 in Victoria, gambling taxes raised over $1.6 billion in state government revenue, over 10% of total state taxes. It has been estimated that 60% of gambling revenue comes from problem gamblers which means the Victorian state government currently raises around $1 billion in revenue from this addiction. Unlike taxes on smoking which can reduce rates of smoking, gambling taxes do not reduce ratees of gambling because they are not levied on the gambler and are very difficult for venues to pass on. Also, gambling costs are not readily compared as the “product” is both entertainment and return.

Some ideas about how to deal with these problems will follow in future posts.