Both sides of politics have suggested that they will be tougher on foreigners buying Australian agricultural land. Concerns about 'selling off the farm' resonate with many voters, but the more relevant debate, largely missing from this campaign, relates to the mineral sector rather than agriculture.

Almost 90% of Australian agricultural land is wholly domestically owned, with another 6% majority-Australian owned. Only 1% of foreign investment proposals in 2010-11 involved agriculture, forestry and fishing. In contrast, 83% of mining profits accrued to foreigners in 2009-10. Looking at the three largest 'Australian' miners, foreign ownership accounts for three-quarters of BHP-Billiton, over 80% of Rio Tinto and 100% of Xstrata. 

The issue is not mainly about foreign ownership, it's whether the foreigners make a fair revenue contribution in return for exploiting minerals owned by the Australian people.

The minerals industry was stunningly successful in 2010 in torpedoing the Rudd-proposed Resource Super Profits Tax (RSPT), replaced with the feeble Minerals Resources Rent Tax. The key argument in defeating the RSPT was that, in a global world of footloose capital, such a tax would drive investment elsewhere. The then-CEO of Rio Tinto said that Australia represented his main sovereign risk.

Now, with some hindsight, the absurdity of this argument is obvious. Would Rio have done better elsewhere? Rio's painful experience with Riversdale coal in Mozambique, Simandou iron ore in Guinea and Oyu Tolgoi copper in Mongolia were assuaged only by the colossal Australian iron-ore profits.

Many aspects of the 2010 RSPT proposal contributed to its demise. The operational details were incomprehensible to all but the tax cognoscenti. Putting in place a cyclically-variable tax at the peak of the boom was like taking away a child's candy, just when the miners had fabulous profits within their grasp. The constitutional issues on mining royalties (which belong to the states) presented a huge hurdle that would have taken years of careful negotiation and trade-offs to overcome.

But this is crying over spilled milk. The challenge is to try again. Current prices of iron ore and metallurgical coal are still three times the price at which the pre-boom mines were producing profitably, so there are substantial resource-rents still being reaped.

A well-designed super-profits tax would serve two vital purposes. First, it would help to significantly expanded budget revenue. Second, such a tax would offset the damaging macro-impact of the mineral cycle.

The interminable election nit-picking and point-scoring on the budget has ignored the overwhelming reality: faced by a shrinking tax base and new expenditures, substantially more tax revenue must be found. If not minerals, where? Table 6 here (link fixed) shows just how well the mineral sector did in the boom and how modest are its corporate taxes and royalties. An OECD like-for-like comparison of taxes on copper mining indicates that Australian revenues are among the lowest in the world

Without a super-profits tax to skim the top off the mineral boom, the exchange rate takes the brunt of macro adjustment. The damage done to the trade-exposed sectors by the 40% rise in the exchange rate has not yet been fully assessed. Instead of industry having to make the painful adaptation to these long-lasting swings, the exchange rate cycle could be smoothed if the cyclical revenue from a substantial resource-rent tax were to be saved through a sovereign wealth fund. This is the practice in many commodity-producing economies.

A successful tax will have to be comprehensible enough for the politicians to be able to answer back when Australia's richest people whinge about being unfairly treated. And any sovereign wealth fund needs to be safe from raids by spendthrift governments.

An election campaign is not the optimal moment to propose such a tax, let alone sort out the operational details. Any party mentioning such a tax would face the withering onslaught of extravagantly-resourced vested interests. All that is required in the heat of the political campaign is for both sides to leave room to revisit this issue at a more propitious time. What about bipartisan support to get rid of the current damp squib of a tax and start with a fresh sheet of paper after the election? The 2009 Henry Report identified the core issue:

Through the Australian and State governments, the community owns rights to nonrenewable resources in Australia and should seek an appropriate return from these resources.

Photo by Flickr user Beyond Coal and Gas.