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For Australians, note that economic rent is common in mining. Some minerals are in high demand, but limited global supply. Some mines are better located, or have deposits that are higher quality or nearer the surface.<\/p>\n
Note, too, that pop stars and film stars also receive economic rent. Some of them earn far more than others because they have more charisma or a bigger following. (Please don\u2019t tell my boss, but even I make a bit of rent. I\u2019d do this job for a lot less than I\u2019m paid. And nor could I make as much in some other occupation. So why doesn\u2019t the boss pay me less? I guess because he\u2019s worried some rival editor might offer me more.)<\/p>\n
In other words, there are many companies and individuals earning economic rent that we can\u2019t do much about. The commission sees this as a problem because the ability of some businesses to charge higher prices than necessary reduces the economy\u2019s efficiency and causes living standards to be lower.<\/p>\n
Which brings us to company tax and taxes generally. Economists worry that imposing taxes on certain activities distorts people\u2019s behaviour. Taxing companies\u2019 profits, for instance, may discourage them from expanding \u2013 or setting up in the first place.<\/p>\n
So how widespread is economic rent? The commission says that modelling undertaken for its inquiry estimates that 54 per cent of the company income tax base takes the form of economic rent. This is up from an estimate of 41 per cent in 2018.<\/p>\n
Taxing individuals\u2019 incomes may (repeat, may) discourage them from working as hard. And taxing the purchase of some goods and services but not others may encourage people to buy stuff that\u2019s not what they would prefer.<\/p>\n
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Treasurer Jim Chalmers and Productivity Commission chair Danielle Wood. The commission wants to make sure we all understand economic rent.Credit: Alex Ellinghausen<\/p>\n
See where is this leading? We often need higher taxes to cover increased government spending and stop the government\u2019s debt getting too big. However, economists worry that higher taxes will discourage people from working and investing, as well as distorting their purchases.<\/p>\n
But if economic rent is bad for the economy \u2013 if it reduces efficiency and holds back living standards \u2013 doesn\u2019t that mean taxing it, even taxing it quite heavily, can help reduce the budget deficit without harming the economy?<\/p>\n