Eight years into a seemingly never ending resource boom, Australia is now plundering a million tones of minerals every year from the ground. New industries such as LNG have signed contracts to quadruple exports in the next 10 years and will soon rival coal and iron ore in export earnings. It is a vast and vital natural resource that governments appear to be willing to fritter away frivolously at disgracefully low tax rates. That is the central thesis of Paul Cleary’s new book “Too Much Luck: The Mining Boom and Australia's Future”. Cleary was at QUT in Brisbane last Wednesday to speak about the problems his book addresses.
Paul Cleary is a senior writer with The Australian newspaper and a researcher in Indigenous development at the Australian National University. In a career spanning 20 years he has reported on politics and economics in the Canberra press gallery and worked as a correspondent in Southeast Asia and as a political adviser. He was awarded a Chevening fellowship by the UK Foreign Office to study at the University of London’s School of Oriental and African Studies and became an adviser to government of newly-independent East Timor in the early 2000s.
Cleary says Australia could learn from East Timor in how to deal with mining companies who have undue influence on public policy. Australia needs to make changes in savings, taxation and regulation if it is to make the most of the boom. East Timor has an oil resource fund as has Norway with its North Sea Oil Fund and Chile with its Pension Reserve Fund based on copper profits. This fund is critical for infrastructure, schools and health needs when the boom finally ends and Australia will have considerably less by way of natural resources to pay for them.
That will require a change of thinking and a way of “pollie proofing” the profits, as Cleary puts it. In the last 3 years leading up to the GFC, the Howard Government blew $334 billion in additional revenues on needless tax cuts and middle class welfare. The result was a spending binge that forced interest rates up by 3 percent. The new Labor Government was forced to borrow $106b to stave off recession. Similarly the Queensland Government was forced to borrow big to pay for the flood and cyclone recovery this year. By contrast Chile used its foreign currency wealth funds to avoid recession and rebuild after a massive earthquake “without racking up a single peso of debt.”
Australia is heading towards the bottom of the quarry with no plans for what to do when it empties, Cleary said. The high dollar is killing off other export industries and tourism which employs far more people than the mining companies. This eventually leads to Dutch disease and the paradox of the two-speed economy. But those industries don’t have the political power of the resource lobby who work on politicians devoted to the quick fix of mining royalties. The State Governments in particularly are hooked on these royalties which make a mockery of their dual role of industry regulator. Cleary said Australia plans to be world’s second largest exporter of coal seam gas (via LNG) despite only having the world’s 12th largest gas reserves and despite the fact that impacts on salinity and groundwater reserves are not fully known.
Cleary said if the States were less cash strapped, they would not be in such an unseemly rush to approve mining developments. He said reforms were needed to share the profits and remove the disincentive to wait for the production revenues. The “third world” taxation system also needed to be fixed to create a future fund and to ensure that governments only spend the average revenue. As Cleary explained to ABC PM that means, taking the 20 year average of mineral revenue as a spending limit and anything above that gets locked away and gets saved into these funds. As Cleary says, failure to do so is effectively stealing from our grandchildren. “We are enjoying an inflated standard of living based on running down an entirely finite amount of non-renewable resources,” he said.