Monday, June 21, 2010

Six Percent

Recently I've been thinking about the figure of six percent. No, it's not the percentage of my salary that goes to taxes. Nor is it related to some number of people afflicted with a disease in a given area. Six percent refers to Prime Minister Kevin Rudd's proposed 'super profits tax' on mining companies in Australia. His ostensive justification for this tax is it will help 'working families' in Australia. The real motive is hatred of producers.

The reason this has been on my mind is my amazement at how Mr Rudd arrived at this figure. Why not 10 percent? Or five? Or eight? Is six percent the amount above the 'usual' and 'reasonable' profit margin that governments today deem 'enough'? Who can say? One thing is certain: his hard push for this tax has garnered him some nasty press in recent weeks - enough that his entire administration is losing supporters fast.

Now let's think about what such a tax must mean in reality. If I were running a business today, any profit I make would necessarily be reinvested back into improvements in my firm. I would be able make more of the products I sell, which means more customers and also better pay for my employees. I might be able to offer better incentives to my employees to retain their skills. Or I might be able to modernise my equipment so I can produce my goods more efficiently. Whatever the case, profits exist to ensure that the business keeps functioning and growing.

Contrary to popular myth, profits do not line the pockets of fat cat capitalists, though it is no concern of mine what successful businesses do with their money. Look at Apple. In the news recently, we learnt that they had surpassed Microsoft to be the most successful tech firm in the world. Their Mac computers, iPhones and iPads sell like hotcakes. A new Apple product release resembles a blockbuster movie release, replete with celebrities and overjoyed customers raising their fancy new gadgets high in the air.

What does Apple do with its profits? Or rather what does its CEO cum rock star Steve Jobs do with his profits? Buy fancy houses, cars and yachts? Does he live the life of a playboy? No, he goes to work. Mr Jobs enjoys his fabulous success by WORKING MORE.

What if the American government were to slap a 'super profits tax' on Apple, for the simple reason that they're highly successful? Would Steve Jobs continue to work as hard? Would his company turn out as many great products as they do now? Would Americans be better off because Apple could produce less?

It is well known that Australia escaped the worst of the global financial crisis in large part because of the mining industry. For this reason alone, they should be spared the insanity of having to rethink their business plans to avoid paying a 'super profits tax'. If Mr Rudd cared a whit about the enviable Australian standard of living, he would cease his chicanery of punishing successful firms and focus on making it possible for more Australians to succeed. The best way he could do that is to tell the Australian public that they are free to produce to the best of their abilities and that he will pass no law preventing them from accomplishing their goals. And then honour that promise.

Addendum: On Thursday, 24 June 2010, Julia Gillard succeeded Kevin Rudd as Prime Minister of Australia. Much is made of her being the first woman Prime Minister, but she possesses the same tired ideas as her predecessor.

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