Super-Profits Tax?

<-- Federal Election 2025

Today's super-profits suggest something's wrong

The thinking behind the idea is that in a hypothetical perfectly competitive market, high returns on equity wouldn't endure.

As soon as one firm worked out how to earn a good deal more than the cost of borrowing, other firms would borrow to enter the market and undercut it, whittling away the excess profit.

For most businesses, especially most small businesses, that's exactly what happens. Continuing large profits are rare.

But for some businesses in some industries, outsized returns are the norm. Among them are the big four Australian banks, where the returns on equity exceed 10 per cent.

For big mining companies such as Rio and BHP, those returns on equity approach 20 per cent. With Coles and Woolworths, they exceed 25 per cent.

In each, the profits aren't whittled away by new entrants because it's hard for new entrants to gain a foothold.

Australians are weirdly reluctant to move away from the big four banks. As for Coles and Woolworths, they have invested so much in distribution at scale they are almost impossible to challenge.

As for mining companies, they get continuing access to the good sites without having to periodically rebid for them.

So why not tax away just some of the well-above-normal profits that they're earning in the absence of proper competition?

It's an argument Swan used arguing for a resource super-profits tax in 2010.

The funds raised could be used to cut the tax rate for the bulk of companies not making super-profits, perhaps even to zero (as the Australian National University's Tax and Transfer Policy Institute suggests). Doing that would help many more Australian businesses become profitable. ABC News

 

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The emergence of monopolies, duopolies and oligopolies represents a failure of the market because competition is either undermined or negated. In order to mitigate this form of market failure, Australia should impose a super-profit tax? (AGREE/DISAGREE)

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