The New Daily

How Australia squandered the mining boom

Why Australia is ending its historic mining boom little better off than when it started.

The mining boom was a missed opportunity to prepare for the future. Photo: Shutterstock

Australia failed to capitalise on a once-in-a-lifetime mining boom because politicians put short-term vote-winning policies ahead of the long-term interest of the nation, economists say.

The private interests of the powerful mining lobby were equally to blame for the squandering of a golden opportunity to strengthen Australia’s economic future.

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An unprecedented boom in demand for commodities – mainly from China – saw Australian exports of iron ore and coal skyrocket in the early 2000s.

AAP

Peter Costello reduced income tax rates in the early days of the mining boom. Photo: AAP

But rather than use the associated tax revenue to strengthen the non-mining sectors in preparation for the inevitable end of the boom, the Howard government passed the savings straight to households in the form of income tax and superannuation tax concessions, a move which Labor supported.

“I’ve never seen something so squandered in my life,” says Mr Richard Robinson, associate director of economics at BIS Shrapnel.

“What happened in the 2000s [when the mining boom began] is that corporate tax revenue increased. Instead of putting that into a future fund, their first response was to recycle those increases into personal tax cuts. The household sector was therefore the main beneficiary of the mining boom.”

This, he says, translated into increased investment in property and rising house prices.

What the government should have done

Mr Robinson says the government should have kept income tax where it was, and put the revenue into a ‘future fund’ or sovereign wealth fund that could be used to fund other sectors when times were tough.

While Howard’s treasurer Peter Costello did indeed set up such a fund – the Future Fund – its scope is limited to funding the government’s pension obligations. No contribution has been made to the Future Fund since the Howard administration.

Monash University economics researcher Professor Jakob Madsen agrees with Mr Robinson.

“The mining sector is driven by global demand, so we were just lucky. But today Australia doesn’t look good,” he says.

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“The government should have taxed the mining boom and spent the money on research and development, and education, because that’s where the long-term future is.”

In particular, Professor Madsen says it should have been used to improve Australia’s agricultural knowledge and technology, particularly by funding the CSIRO.

“The global population is going to grow and there will be a shortage of food in the future. We need to boost our productivity in agriculture, and we have not done that.

“Yes, we have squandered it [the mining boom] away. We should have kept taxes up.”

Ironically, Mr Robinson says one of the main recipients of research and development funding has been the mining sector. While he says this makes sense up to a point – as Australia’s mining sector is world class – he also agrees with Madsen.

“The government could be putting more money into CSIRO, which they are actually cutting,” he says.

It could also have been used to invest in renewable energy technology – a policy vigorously opposed by the mining industry for obvious reasons.

The mining lobby

Both Mr Robinson and Professor Madsen agree that the combined power of the mining industry was a major factor in preventing the Rudd-Gillard Labor government from getting its hands on the spoils through a mining tax.

“The [benefits of] the mining boom has gone to the billionaires, and that has made them more powerful,” says Professor Madsen. “We have seen it in the African mining sector: the bigger it becomes, the bigger the industry’s political power becomes.”

Gina Rinehart is a supporter of greater development in the north of Australia.

Mining magnates like Gina Rinehart were the big winners in the mining boom, says Professor Jakob Madsen.

In the case of Australia’s mining boom, he says in the battle over the mining tax, it was no contest. “It’s infuriating – the mining industry won the whole thing.”

Mr Robinson says the mining lobby’s $20 million anti-mining tax advertising campaign was a major factor in swaying public opinion. He says the government could never have justified spending that amount of money to the electorate. Meanwhile, to the mining industry $20 million is “chicken feed, petty cash”, he says.

However, the economists agree that the mining tax was badly designed, allowing mining companies to write off potential taxable income as necessary expenditure. Hence the final tax introduced by the Gillard administration failed to raise much money at all.

The money: what we missed out on

In the year 2000, the total value of energy, minerals and metals (hard commodity) exports was just under $45 billion, according to BIS Shrapnel figures. By 2012, at the end of the mining boom, the figure had more than quadrupled to $188 billion.

To put that in context, agricultural (soft commodity) exports accounted for $25 billion in 2000, and $36 billion in 2012. Non-commodity manufacturing and other exports went from $28 billion in 2000 to $42 billion in 2012.

But over the past two years, investment in mining has fallen off as demand from China levelled out after its meteoric rise.  

Iron ore, one of the two stars of the boom, halved in price in 2014. The other star, coal, also plummeted. So far other sectors have failed to pick up the slack, meaning unemployment has been on the rise and tax revenue is falling.

According to China’s Customs Bureau figures released on Tuesday, trade between Australia and China grew by just 0.3 per cent in 2014, compared to 11.5 per cent in 2013, a dramatic and ominous drop.

  • Thai Trev

    The future fund was set up to pay pollies exorbitant super,says it all,really.

    • Bill

      It certainly does. What a disgrace the future fund is. Iy all boils down to bigger you Jack, I’m all right.

  • Batara

    Wonder how soon we will read that in the Murdoch Press. Mining and Media hegemony go hand in hand!

  • David Pearn

    We could have done a ‘Norway’ and invested in everyone’s future instead of indulging in increased middle class welfare and outrageous superannuation tax concessions for the wealthy.
    Resulting in
    Tony Abbott.

    • Bah, humbug

      Abbott – yet another thing to blame Howard for. I hadn’t thought of it like that. Now I hate Howard even more.

  • clivee

    The reality is that all the concessions given by the Howard/Costello government had continuing, long-term adverse implications for the budget. In contrast, the ALP’s big spend items, pink batts, the school building project and the $1,000 grant to taxpayers, were one-off spending items with no continuing implications for the budget. Yet the LNP wants us to believe that Labor created the budget mess that they ‘inherited’. Abbott still does not understand this difference. His paid parent leave proposal has on-going long-term budget implications, identical to the Howard/Costello’s family tax benefit, superannuation and other tax expenditure handouts.

  • ronnie

    well now how has liberal governments really stuffed up our future with short term thinking and taking from the poor now to keep the rich happy

  • John Kearns

    What most ppl in Canberra and the Eastern seaboard states conveniently forget when it comes to squeezing the mining companies is a little thing called ”The Constitution of Australia 1901”. The Founding Fathers, in their wisdom, decided what would remain as state responsibilities and what would become Federal responsibilities. Mining was to be a State responsibility and accordingly, each state set up their Mines Departments to administer mining in each state and garnish money from mining companies in the form of royalties. Are you following me so far? Given this small constitutional fact, economics professors, journalists, politicians and a couple of hundred thousand mining experts (and we all know what an ex spurt is!) need to grasp that the only funds available to federal coffers is through income tax on mining employees and executives and company tax on the mining companies. The Feds have NO rights to tax the production and exporting of minerals and ores! To the best of my knowledge, the Constitution of Australia has not changed since 1901. All this talk of ”Australia” missing the mining boom is absolute crap! It did not. I know of one mining company that paid the Federal Government a quarter of a million dollars over two years for my services alone! Go figure.

    • Josh

      “The Founding Fathers”… are we living in America now?? The article didn’t mention anything about mining royalties, it mentioned the increase in corporate tax – which goes to the federal government – and how the extra revenue from this was used to give tax breaks to people who didn’t need them instead of investing in the future of our country. Being from WA I don’t 100% agree with the mining tax, however Labor would never have had to introduce it if the Howard government had done their jobs properly in the first place.

      • John

        Josh, be they called the founding fathers or the sh-thouse shaggers, they drafted and enacted the constitution of the Federation of Australia. Now, it was they who decided that mining be under state control following federation. Therefore, any tax raised from mining, particularly in WA, was to be a state right. So the feds trying to muscle in on WA mining is against the constitution. I am aware that twiggy challenged this in the high court and lost. Beats me how he lost, it’s not that complicated! A state right is a state right, during a mining boom or during a depression.

    • Alan Kelly

      The Constitution of Australia 1901. 114 year old mentality working on today’s problems. Hmmm…like working on a new car today with a 1940’s repair manual, or getting directions with a 15 year old Melways.????

      • John Kearns

        Melways? You are obviously one of those eastern seaboard leftards that has both no understanding of the workings of the constitution and a limited comprehension of reality. Your analogy is an absolute joke and if forced to guess your occupation, I would proffer that you fit door handles to cars on an assembly line.

  • Dean R Frenkel

    Two tragedies from this: (1) That the miners neglected to pay decent royalties to the Aboriginal custodians. (2) That the corrupt mining lobby was able to control Government policy and steal the prosperity.

  • CGB

    Robinson, pull you head out of arse you wanker!

    Another so called “expert”

    Costello dropped income tax, (not even worthwhile a drop), to compensate Aussies for the needed GST bought in after it was revealed that the former Keating/Hawk government had put Australia in debt for well over $50 billion. That “tax cut” didn’t even cover the rising cost of food….

  • AntiRight League

    How can the Howard apologists possibly argue that the LNP are any kind of forward-looking party given their propensity for pork-barelling and inability to tap meaningfully into the mining boom for EVERYONE’s benefit (not just their mates the billionnaires). Their hard-wired gormless belief in the tax cuts = prosperity equation is handing the world to the super-rich on a platter.

  • David Maywald

    The peak in commodity prices occurred from 2007 through to 2013, which turned out to coincide closely with Labor’s time in federal government. Australia’s Terms of Trade boomed for these half a dozen years (can clearly be seen from these RBA charts). Permanent government spending increased significantly during this time… Unfortunately the export earnings & taxes from this boom has now petered out… Hence the need for cuts in all areas of govt spending, and more contribution from all people to fund public services (eg broaden and lift the GST). The difference between govt revenues & expenses is $30-40 billion per annum, which is about $1,500 for every person in Australia… The govt is spending $1,500 more than it collects in tax, for every person each year, over and over…

  • Steve baz

    One of those stupid misconceptions – that half of a given sample are below and half above the average. eg five people take a quiz, four score 50% and one scores 100%. Four are below average and only one is above average.

  • Steve baz

    Good to see someone understands difference between average and median, but what relevance is ‘median intelligence’ ?

  • mulga mumblebrain

    Yes, but more equal than you and your ilk would prefer clearly, and not as equal as it ought to be. Apart from the moral requirement to end inequality, (as far as it is possible), poverty and arrogant, unmerited privilege, a ‘Free Market’ economy only works truly efficiently if market power ie money power, is as nearly equally distributed as possible. Moreover as Piketty and numerous others have shown, wealth is hardly ever the result of hard work, or business acumen. Most is inherited, or gained through speculation and ‘dividend bludging’ the vast majority of stocks, shares, bonds etc being possessed by the top 1%, or through crime. I gather that you see the current global situation where the top 80 billionaires own as much wealth as the bottom 3.5 billion is some sort of Nirvana to which we should aspire.

    • David Maywald

      Instead of responding with fallacious economic theory, unattainable goals, name-calling or unsubstantiated assertions, please see my five part blog on inequality in Australia and a comprehensive discussion of Piketty’s book… https://www.linkedin.com/today/author/123471384

      Working from the estimates in ABS catalogue # 6554 the most recent wealth share of the top 1% in Australia is about 12.6%, which is much lower than Piketty’s figures of about 25% in Europe and 34% in the US… This makes Australia more equal than Europe or the US have been at any time during the last two centuries of data relied on by Piketty.

      According to The Conversation: “The most recent Credit Suisse Global Wealth Report, prepared by Anthony Shorrocks, one of the most highly respected world experts on wealth distribution, estimates that the distribution of wealth in Australia is the second least unequal (after Japan) of 27 major countries and the 12th least unequal of 174 countries.”
      Australia is a world leader in equality. 🙂

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  • Joe Christ

    Well said!
    Unfortunately the people who’ve been fed MKR, The Voice, Cricket… know nothing of all this.
    They clapped when the mining tax was culled, all Chinese investors made to grovel and billions spent to buy weapons that the USA need to sell but Australia doesn’t need…
    Now let the people wipe themselves…

  • Maurizio Pellizzon

    Isn’t it clear? Their objective is to create the next banana republic …

  • entered

    What a load of rubbish. Our 48.5% income tax from $50k caused the largest brain drain we had ever seen, and if the govt attempted to tax the mining boom like you say, there would have been no mining boom as the mining companies would have up and left.

    • Brian

      That wouldn’t be so bad, renationalise the resource in the ground and tender out the mining processes to local mining contractors= Jobs and full $ value of the resource going back to the people of this country.
      Our constitution, which was drafted and authorised by foreigners to benefit the same foreigners= British Lords

  • hammerheadbeach

    No we didn’t squander it the f@cKi*g government did in all their wisdom . . .

  • Jules

    Well said David, we should follow a lot of Norway’s ideas, and we would be a much wealthier country

  • Jeannine Coventon

    Gillard spent it on hats

  • Zak Erythromycin

    Good someone had the guts to speak up. Well done James. Mistakes are made now live and suffer with the consequences.

  • Bruce

    We all knew this was happening and we knew this over 10 years ago. Liberal, Labor and the Nationals (and the useless Greens) should be ashamed on the damage they have done. Time and time again people said we should save the boom or invest in incoming producing assets but no, the so called elite wasted our inheritance. Equal blame is to be given to each individual who spent the boom on lifestyle such as OS trips and big cars.

    Because of the failure of Government and individuals at the time where I saved and invested (but not spent) I’ll now take what I legally can from Australia for myself.

    Australians we’re told 10 years ago that the path they were taking would lead to pain, they ignored the warnings and we will now suffer.

  • Indian Ocean Dweller

    Unlike Australia Norway has transferred its tax/royalty revenues from its key resource, oil and gas, into a sovereign wealth fund. Norway’s oil and gas tax is 78%. Although there are concessions for strategic investments in R&D and activities which enhance well recovery rates. Did this tax rate scare investors away? Not really, Norway has attracted investment of ~ US 350billion into its upstream petroleum sector, most of which has been invested by the worlds major oil companies.

    Amazingly Norways sovereign wealth fund has now reached a value of 6 TRILLION Kroner or nearly $1 TRILLION Australian dollars. Compare this with Australia and all we have to show from our resources boom is a budget deficit. I wonder which country got it right.?

  • Ding Arling

    Nice Article, but i wonder how much this talk of “squandering” is really an after the fact observation? Also during the “boom years” surely income tax reduction had stimulated the economy in other areas (non mining)? So i am not convinced this article is completely correct, but they are the experts.

    I think the problem in this country is not so much that we don’t have good ideas or foresight but its really the level of
    public debate. I am sure there were many within the ranks of the ALP (and Lib) who had vision, but their message in the political sphere was usual political rhetoric (we care about working families, they don’t). Apart from the GST and labor countering how it will destroy the economy and families, I don’t think there has been any real deep economic debate. Even during the Gillard/Rudd period, I think 5 consecutive year of deficit without any serious attempt to address was alarming.

    And I admit this may be trivial, but compare how Australia has fared to socialist countries when oil has collapsed. I think Australia has done not too bad compared to how socialists like to run things.

  • Annabay Brendan Sutho

    That’s what happens when you get brain dead morons with 1 month tickets earning more than university graduates ….Pathetic (bogan retards buying toys and not caring about the future)

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