Cleary - Too much luck: the mining boom and Australias future

On 361 mining complexes all over Australia, men, women and mammoth machines are operating around the clock on a scale never before seen in this countrys history. Australia now produces more than one billion tonnes of minerals each yearand thats only counting the finished product. This is five times more than we were producing at the end of the last boom thirty years ago. It is enough to fill 3,000 of the biggest bulk carriers that ply the worlds oceans, and the prices obtained from those shipments have risen on average by more than three times since the current boom got underway in 2003. While the impact of this boom is changing the face of our continent in ways that will be irreversible, our politicians lack the courage and capacity to put in place policies to ensure that we, and our descendants, reap a lasting legacy from this once-in-a-century opportunity.

This current boom, the fifth in our history, may have only just begun. The demand for minerals to feed Asias industrial and urban transformation is forecast by government experts to last decades. New industries like liquefied natural gas (LNG) have signed contracts to quadruple exports over the coming ten years and will soon rival coal and iron ore in export earnings. Despite this phenomenal change in our fortunes, our governments still have vast blind spots when it comes to managing the industry and the tax revenue it generates. Our leaders spend the income from our resource wealth like theres no tomorrow, even though this money is derived by running down our natural endowments. They are spending our capital. If we were the clever country we claim to be, wed turn a share of this revenue into financial assets designed to last forever. Instead, our politicians behave like those of developing countries, spending indiscriminately and allowing mining companies to exert undue influence. So orestruck are many of our state and federal leaders that they lack the will to tax and regulate this industry effectively.

To avoid the pitfalls experienced by other resource-rich nations over past decades, Australia needs to make changes in three areas: saving, taxation and regulation. We should put a substantial share of resource revenue into a fund that can be drawn on when boom turns to bustas it always doesand to compensate future generations, who will have to get by with considerably less in the way of mineral wealth. Overseas experience in places like Norway, Chile and even tiny East Timor shows us how to do this, and we can improve on these models by pollie-proofing our funds. These examples are there for us to learn frombut so far our leaders have shown little interest.

The global financial crisis starkly revealed weaknesses in how we manage our resource income. In the three years before the crisis, the federal governments coffers swelled by $334 billion in additional revenue, as low interest rates and the mining boom underpinned strong economic growth. Nearly all of it was spent on tax cuts and middle-class welfare by John Howardpissed up against the wall, if the truth be told. This spending binge forced the Reserve Bank to jack up interest rates by 3 percentage points to 7.25 per cent. When the GFC arrived, the new Labor government ran up debt of $106 billion as it sought to stave off recession. And when natural disasters hit Queensland in early 2011, the government had to introduce a new levy to pay for the reconstruction because it didnt have a fund to draw on. By comparison, Chile, another resource-rich nation, had foreign-currency wealth funds that it had built up during its boom years. It used part of these savings to pay for an even bigger stimulus package and got through the GFC and a devastating earthquake without racking up a single peso of debt.

The really scary thing is that after this appalling episode we still dont have policies in place to prevent it from happening all over again. Without policies to save windfall and to compensate future generations, our state and federal treasurers will continue this feast-to-famine cycle. They will have put aside nothing to deal with unforseen events like natural disasters, the effects of climate change or war.

Without stronger and more effective government control, Australia will continue travelling at breakneck speed towards the bottom of the quarry, a journey that will wreak havoc on the non-resource sector and potentially leave many people far worse off. As the resource boom accelerates, it will keep the dollar sky-high and force up the cost of doing business for everyone else. Industries such as tourism and educationindustries that, unlike mining, involve many jobswill fade away as our currency soars even higher, propelled by speculative investment as the Australian dollar becomes Asias new hard currency. We will be left high and dry if commodity prices suddenly collapse, as they did during the GFC in 2008, or worse, when the resources start to run out.

Our state and federal politicians have become so bedazzled by the prospect of even greater mineral riches that they are eagerly encouraging a resources rush while neglecting long-term ecological and financial consequences. Increasingly, we see weak and inept governments up against muscular multinationals. Small state governments find themselves negotiating with companies whose revenue is many times their size. Even in our largest state, New South Wales, farmers are living with the consequences of the former Labor governments decision to issue hundreds of contentious mining leases in a desperate grab for revenue. Australia needs to reform its regulation of the mining industry, in particular by embracing greater co-operation between state and federal governments than our 1901 Constitution provides for. Without such reforms, a handful of multinational companies will continue to profit enormously from resources that by rights belong to all Australians. Under our current system, those most directly affected by mining projectslocal communities, regional towns, Indigenous land-ownersoften benefit very little.

Politicians and economic experts proclaim that the good times will roll on for decades, transforming the nation into a resources superpowerthe Saudi Arabia of the Asia-Pacific region. Surging demand for our dirt and gas has revived the euphoria of the rush that never ended. But this boom should instead remind us of Donald Hornes observation that we are a fortunate country run by second-rate people. We think we are the lucky country, but what we really have is dumb lucktoo much luck, more than we know what to do with. Unless we manage this extraordinary boom more effectively, our good fortune will curse future generations.