Neutrality of the Resource Super Profits Tax

Abstract

A report by Hausman claims that the Resource Super Profits Tax proposed in Australia in May 2010 was distortionary because it did not allow deductions when companies exercise real options. This article shows that standard financial theory leads to other conclusions and discusses some other points made by Hausman. The proposed tax system did not necessarily distort the choice to close down an operation with large losses carried forward. However, there could be some transitional problems and the introduction of the system could increase perceived sovereign risk. This must be weighed against adverse effects of other distortionary taxes.