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Mining boom policies dig a hole for economy

Date

Ross Gittins

<i>Illustration: Kerrie Leishman.</i>

Illustration: Kerrie Leishman.

It’s in the nature of the news media to focus on the new, on the bit that’s changing. So when people like me bang on about the resources boom – as we’ve been doing for about a decade – it’s probably inevitable we leave many people with an exaggerated impression of the size of the oh-so-important mining industry.

Most people have little idea how mining compares with the rest of the economy. Some, when asked, say it may account for a third of the total.

Sorry to mislead. It’s actually a bit over 10 per cent of all the goods and services we produce. If that doesn’t seem like much, it is. It’s a bit more than the whole of the manufacturing industry contributes and about three times what agriculture does.

More to the point, it’s up from about 4 per cent before the boom began. And it’s a big deal for any industry to go from 4 per cent to 10 per cent in the space of a decade. That couldn’t happen without having big implications for other parts of the economy, with the high dollar just one example. So it’s little wonder the economists have been so obsessed by it.

It’s the biggest single development affecting the economy – the whole of the economy – in that time. And though the smarties began proclaiming the boom’s death a year or two ago, its closing stages will still have big effects on the economy – favourable and unfavourable – for at least another couple of years.

Many people are uneasy about the expansion of mining. Digging non-renewable resources out of the ground and shipping them overseas seems such a dead-end occupation. People’s reservations are compounded when they realise how amazingly capital-intensive mining is. That is, how few people it employs.

Mining may account for 10 per cent of our total production, but it accounts for only about 2 per cent of total employment. Building new mines is labour intensive, but running them isn’t. If so, why bother?

It’s a mistake to think it’s only direct employment of people that makes an industry worthwhile. What matters is how much income an industry generates. Why? Because when that income is spent it will generate jobs elsewhere in the economy. That’s what spending does: generate jobs.

In the case of mining, however, there’s a complication. Though the powers that be don’t trumpet the fact, mining is about 80 per cent foreign-owned. Even BHP Billiton is, essentially, a foreign company. And most of the extensive capital equipment mining uses is imported.

Mining in Australia is a highly profitable activity because we possess a large share of the minerals and fuel the world values highly, and because our deposits are generally high quality and easily extracted.

If mining creates so few jobs directly, and so little of its profits accrue to Australians, that leaves two key concerns to ensure Australians get suitable recompense for the exploitation of our natural inheritance: make sure miners pay adequate royalties on the minerals we grant them and make sure their profits are adequately taxed.

Business people tend to portray taxes and revenue received by governments as dead money. The opposite is true. The government spends the money it receives, and when it’s spent it creates jobs, like all spending does.

The Labor government bungled its attempt to ensure the miners’ profits were adequately taxed. But, rather than correcting Labor’s errors, Tony Abbott has pledged to abolish the tax and let the foreign miners off the hook. Then he’ll wonder why the huge expansion in mining production we’re now seeing is creating so few jobs.

It gets worse. Not only are we under-taxing the miners, we’re giving them lots of subsidies. Not only does the federal government give them a rebate on the excise on their diesel fuel, the state governments give them assistance by building the roads, railways and ports they need to ship their minerals abroad.

According to calculations by the Australia Institute, the states gave the mining industry  $3.2 billion in concessions in the financial year just ending. Queensland gave assistance worth almost $1.5 billion, mainly by providing railway infrastructure and freight discounts.

Western Australia spent almost $1.4 billion, mainly on roads and port infrastructure. Other states’ subsidies are much smaller – $140 million in NSW, $40 million in Victoria – but so too are their receipts from mining royalties.

It turns out the Queenslanders' subsidies to mining are equivalent to almost 60 per cent of the royalties they receive. In WA it’s about a quarter, and in NSW it’s less than 10 per cent. In Victoria, however, it’s three-quarters.

And this while governments, federal and state, are crying poor and cutting spending on many worthy causes.

Apparently, the end of the age of entitlement applies to poor people, not to big corporations. And that’s true for foreigners, not just locals.

As Ian McAuley, of the University of Canberra, has pointed out, we’re slashing our planned spending on foreign aid because we can no longer afford such generosity, but by abolishing the mining tax we’re being very generous to big foreign mining companies.

This makes sense?

Ross Gittins is economics editor.

177 comments

  • Well as usual Tony has everything the wrong way around, support the multinationals, screw the local workers, blame everyone else for his own stupidity.

    By the time he's sacked Tony will have blown out the deficit through his indigestible budget, increased unemployment, lowered workers conditions and real wages, and given the wealthy a free ride. Please can we all stop complaining now, we have a political genius at work.

    Commenter
    GOV
    Location
    Sydney
    Date and time
    June 25, 2014, 1:27AM
    • I thought this was about the mining tax, GOV.

      Would you care to elucidate on how exactly ending the mining tax will increase unemployment?

      I am losing the thread of logic in Ross' argument here. He seems to be suggesting that any increase in revenue increases jobs because the government has to spend it on "something". Why not then increase income tax to 70%, and company tax to 50%. Think of the jobs that could be created! Or better yet, nationalise the whole mining industry so that all profits stay in the government coffers!

      (That was sarcasm, by the way.)

      Commenter
      Spaniel
      Date and time
      June 25, 2014, 5:48AM
    • The miners need to pay a fair amount of tax. They already donate enough to political parties and spend enough on propaganda. That is what affects political decision making however. The public needs to back a proper mining tax so that we are not played for fools which is what is happening.

      Commenter
      Good Logic
      Date and time
      June 25, 2014, 7:02AM
    • Spaniel, I'm not sure you get this economics stuff. The mining tax is a tax on income otherwise going mostly overseas, whereas income tax is a tax on income within Australia. So yes removing the mining tax significantly reduces money spent in Australia.

      Commenter
      Matt
      Date and time
      June 25, 2014, 7:15AM
    • My bigger issue is with the hypocrisy of so many commentators, Ross included.

      One week they are slamming Abbott for "breaking an election promise" (no new taxes / no impact on pensions) the next week they are demanding that he break an election promise (scrap the MRRT)!

      Speaking for myself I think the MRRT in its current form should be scrapped - it is not working, and it will not raise the claimed revenue ($200m actual vice $2bn predicted!!!). It should be replaced by an alternate, all encompassing scheme - tied in with state based royalties if necessary.

      As for multinationals moving profits off shore - that is not an a issue an Australian Government can address on its own, which is why it is one of the topics for the G20 (yes, that august body the socialists hate!). As long as there are tax havens, companies and individuals will move money around to avoid paying taxes - and there is little governments can do to combat that provided it is done legitimatly (and last I looked, "expenses" are legitimate deductions against income, as much as those expenses are license fees from corporate HQs in tax havens)

      Commenter
      rob1966
      Date and time
      June 25, 2014, 7:51AM
    • Spaniel - I agree that State royalties is the best way to increase mining revenue, noting any such increase would be taken into account by the Commonwealth Grants Commission when distributing the GST. Regardless, there is still a nett gain to the Australian economy.

      Commenter
      Flanders
      Date and time
      June 25, 2014, 8:06AM
    • @Matt - that's company tax you are talking about, not personal income tax. Corporate entity vs individuals. And yes, any profits made by a company here in Australia do get taxed before any money goes to the shareholder, whether that shareholder is Australian or overseas, at a flat rate of 30%.

      Commenter
      Spaniel
      Date and time
      June 25, 2014, 8:08AM
    • you hit the nail on the head for the current extremist Bisunist government.

      Commenter
      Martin
      Date and time
      June 25, 2014, 8:09AM
    • Gee Spaniel,

      Was that really sarcasm???? I wouldn't recommend that you give up your day job, always presuming you have one, to take up stand-up. The sarcasm was, how to put it, just a trifle clumsy and elephantine. Notwithstanding that, I think it is a terrific idea to nationalize the mining industry. Then the benefits would, as they do in over 100 countries, flow to the local people, rather than wealthy foreign plunderers.

      Commenter
      Lesm
      Location
      Balmain
      Date and time
      June 25, 2014, 9:14AM
    • Yep....not sure what happens when all minerals are gone, and all land and underground water is poisoned with chemicals through lack of regulation and accountability.

      We have to stop pretending that we are voting in pollies who are there to represent the majority i feel, and accept the fact that we have been voting in pollies who are representing their lobbyst backers, who are allowing a small group to conduct their pillage at the expense of the rest of society and environment..........

      Commenter
      Warbler
      Date and time
      June 25, 2014, 10:59AM

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