The conservative Australian government recently scrapped the mining tax that had been introduced by the previous government. The conservatives argued that the higher taxes had distorted the allocation of resources by changing the rates of return on different uses of capital (and labour). The previous tax had taken the form of a Resource Super Profits Tax on mining companies. Leaving aside the arguments that the government does not need revenue to spend, a typical mainstream economist would agree with the conservative government's decision and conclude that the tax was bad because it reduced mining investment.
Answer: False
The answer is False.
The question doesn't directly have much to do with Modern Monetary Theory (MMT) at all. It was intended to provide insight into the inconsistencies (doublethink) that mainstream economists get themselves caught up in when they blur their own "pure" theory with political and moral arguments.
Even in mainstream economic theory there are many instances where government intervention is beneficial although you won't find too many conservatives who continually invoke "competitive text book theory" to make their cases for cutting government intervention etc admitting that.
In fact, most of the commentators who perpetuate "free market" economics do not fully understand it as a body of theory.
The Resource Super Profits Tax introduced by the previous Australian government is in the class of taxes known as Resource Rent Taxes. What are they?
The papers available at the Australian Treasury's Tax Review site are of interest, particularly Chapter C: Land and resource taxes of the final Report.
There you learn what economic rents are and how they arise:
The finite supply of non-renewable resources allows their owners to earn above-normal profits (economic rents) from exploitation. Rents exist where the proceeds from the sale of resources exceed the cost of exploration and extraction, including a required rate of return to compensate factors of production (labour and capital). In most other sectors of the economy, the existence of economic rents would attract new firms, increasing supply and decreasing prices and reducing the value of the rent. However, economic rents can persist in the resource sector because of the finite supply of non-renewable resources. These rents are referred to as resource rent.
So an economic rent arises to a resource where it is in finite supply and demand drives its return above the minimum required for it to be used in the current use. For example, Madonna would probably work for much less than she does but enjoys rents because people seem to like her performances and records etc.
The point about an economic rent is that if you eliminate it you will not alter the supply of resources.
The Treasury Review Chapter tells us that in mainstream theory (derived from a 1931 article by Hotelling).
The optimal rate for exploiting non-renewable resources is, in theory, determined by the required rate of return ... The owner of the resource can maximise the value of their resource stock by extracting quantities at a rate such that the expected value of the remaining resources rises over time at the required rate of return.
So even in mainstream economic theory, a resource rent tax will be optimal if it fully taxes the super-normal profits accruing to the companies that have been given the rights to exploit the mineral deposits. In this respect the 40 per cent tax proposed by the Australian government is sub-optimal because it leaves some of the rents in the hands of the rights-owners.
Theory then describes how leaving rents in the system will lead to sup-optimal outcomes. You can read the Treasury Report noted above for more information on that if you are interested.
But the important point is that the tax on the rents will not lead to less investment in mining projects. Firms will still earn more than the competitive return on their capital available elsewhere - 60 per cent of the higher rate of return more!
There are other arguments that can be used to support the tax which are more amenable to MMT. For example, the incidence of the tax (who bears the final burden of it) will most likely fall on high-income investors. In the case of mining this group also involves many foreign interests. Low-wage workers will not bear much if any of the incidence.
The question also of who "owns the resources" is relevant. If the resources are "publicly-owned" by all of us then it appears inequitable to allow foreigners and high-income rights-owners to compile massive wealth arising from exploitation of the resources. These are complex arguments that I will leave alone at the present time.
There are many more arguments that have been used.
From the perspective of MMT, the basic fiscal proposition underpinning the previous government's justification for the tax, however, was flawed. The previous government had said that by raising funds in this way they will be able to improve infrastructure, pay better retirement benefits etc for Australians who had not directly benefitted from the "mining boom".
The only MMT justification for the introducing the tax or increasing its rate would be if it helped drain demand at a time when the real capacity of the economy was being exhausted and inflation was threatening. The Australian government has suggested this is one of their motivations.
The other point is to consider the overall tax drain on aggregate demand in terms of the composition of the taxes being used to achieve that drain. Of the available taxes, Resource Rent Taxes advance equity; do not have any disincentive effects (strictly speaking) and are relatively easy to administer.
So shifting towards this type of tax as a vehicle to fight inflation would be sensible.
The following blog may be of further interest to you: