The economic rent in aquaculture – serious breaches of the duty to investigate

The Government’s proposal for economic rent tax in the aquaculture industry is severely inadequately investigated. We are constantly getting new messages in the news that the proposal for economic rent tax is designed in such a way that it has dramatic negative consequences for the industry – most recently in the form of redundancy notices at several fish processing facilities. The risk of such consequences is not described in the case investigation. This is a clear breach of the investigation instructions that apply to all Government measures. The Ministry of Finance, which has proposed the economic rent tax, is obliged to prepare a case investigation which, among other things, will describe the positive and negative effects of the proposed regulations.

The economic rent tax was first investigated by a public committee which in 2019 presented a public report, NOU 2019:18 Taxation of aquaculture activities. On 28 September this year, the Ministry of Finance presented its Consultation Memo – Economic rent tax on aquaculture. The documents total 280 pages. In other words, much has been written about the economic rent tax.

Seen against this background, it is striking that many of the effects of the regulations have not been described and assessed in the investigations. The general impression is that the reports are written by professionals with knowledge of economic theory, but with limited knowledge of how the aquaculture industry works in practice.

The question of norm price as a basis for tax is, for example, discussed over 7 pages in NOU 2019:18 and over 3 pages in the Ministry of Finance’s consultation memo. It appears as if a thorough assessment has been made here of whether to calculate the basis for tax according to the norm price, which is a fixed calculated price, or whether to base it on actually achieved prices. The norm price is chosen mainly because - according to the investigations - you want to avoid the companies in a group adapting to the tax rules by setting artificially low prices for the turnover that provides the basis for taxation.

However, the investigations do not contain a word about how a tax base based on the norm price will work in a situation where the price the fish farmer achieves for natural market reasons deviates from the norm price. The negative consequences for entering into long-term fixed-price contracts, for example, are not discussed in any of the reports. As we have seen since the proposal was presented, the norm price here has major negative consequences. It creates uncertainty about the future taxation, which means that no one dares to enter into long-term contracts at a fixed price - because the fish farmer risks large losses if the norm price when the fish is delivered from the net cage deviates from the agreed fixed price.

The same applies to the effect of the norm price on sales of production fish; i.e. fish of lower quality which is therefore sold at a lower price. The investigations should obviously contain an assessment of the risk that a tax system based on norm price has the effect that the tax rate for the sale of such fish becomes so high that the fish farmers choose to destroy this fish rather than sell it so that it can be used as a food resource.

That taxation based on the norm price entails such risks should come as no surprise to anyone who knows anything about how the aquaculture industry works. The Ministry of Finance should obviously have obtained information from the industry - and not just from theoretical economists - when they wrote the consultation memo.

It is important to emphasise that the investigation instructions require that such major negative consequences must be investigated by the proposer before the decision is sent for consultation. The Ministry of Finance cannot send a poorly investigated case for consultation and expect that the deficiencies can be corrected through a consultation process. It is the proposer who must fulfil the duty according to the investigation instructions.

There are two important reasons for this. One is that the Minister of Finance and the Government must find out about all negative effects of the proposal before they choose to submit it. Many of the negative consequences of the economic rent tax must have come as a surprise to the politicians who have put forward the proposal, and who we must assume have mainly familiarised themselves with NOU 2019:18 and the Ministry of Finance’s consultation memo before they concluded that the proposal for an economic rent tax makes sense. The second is that it is unfortunate when the industry has to present the negative consequences of such a proposal. This can be perceived as part of the industry’s political argumentation against a tax they do not want, and the description of the consequences will have far less impact than it would have had it been in the Ministry’s report.

In my opinion, it is unacceptable that the assessment of the introduction of such an important and far-reaching regulatory measure as the restructuring of economic rent tax in the aquaculture industry is based on such a flawed investigation. A proposal with an investigation that clearly contradicts the investigation instructions must be withdrawn and returned to the Ministry of Finance - IMMEDIATELY.


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