New work by the Australia Institute suggests that the benefits of the mining boom were far smaller than believed and primarily went to mining companies themselves, rather than taxpayers or workers across all industries.
The Institute’s David Richardson has crunched the numbers on the impact of the spectacular surge in commodity prices from 2004 and found that many of the gains from the boom were temporary or offset by losses elsewhere.
Mining companies were the obvious winners, earning $37b in additional profits over the period, but much of this was re-invested in new capacity which is now idle or, in Rio Tinto’s case, wasted on a top-of-the-market purchase of Alcan. Much of the profit returned to shareholders also went overseas.
Non-mining companies, other than those directly servicing the mining sector, did not fare as well. Other exporters suffered from a higher exchange rate that reduced Australian competitiveness in areas such as manufacturing (although it also reduced the cost of imported goods), and the whole economy faced higher interest rates as the Reserve Bank strived to contain the boom.
Workers benefitted from significant real wage rises only if they worked in the mining sector or in Western Australia, which virtually ran out of workers toward the end of the boom. Wages across the economy, however, only showed a fractional real increase beyond levels of growth seen in previous years. For mortgage holders, wage increases were also partially offset by the significant rise in interest rates over the period, although the higher exchange rate kept import prices lower.
Governments in Western Australia and Queensland benefitted from a near-doubling of royalties, but the mining boom itself only contributed a fraction of the overall additional tax revenue the Commonwealth found itself swimming in during the boom. According to the Institute’s figures, tax revenue from mining company profits only accounted for less than a fifth of the additional revenue Treasury failed to forecast over the period, suggesting the additional spending and tax cuts provided by the Commonwealth were financed mostly by overall economic growth, not the mining boom.
The report shows some of the elements of the “resources curse” at work, particularly in the impact on other exporters of an exchange rate boosted by commodity prices. The corollary, however, is that the rest of the economy also performed strongly in terms of profits, which fed back into taxation revenues and funded personal income tax cuts. It also suggests Australian workers did not exploit — or were not successful at exploiting — the boom to significantly increase real wages outside the mining sector.
Given Workchoices didn’t commence until the end of March 2006, it is clear that the pre-Workchoices industrial relations system was relatively effective at curbing the sort of wage break-out that had been prompted by previous resources booms such as at the start of the 1980s. The wholly unnecessary and ideologically extremist nature of Workchoices is clearer than ever.
However, the Institute also notes that the boom is not yet over, given commodity prices still remain at historic highs and mining output is still 15% higher than in 2004. A rapid recovery might leave us poised on the edge of another boom — with all its positive and negative effects.
“but much of this ($37b profit) was re-invested in new capacity”
‘But’?? What is this if not a clear manifestation of flow-on benefit to the wider economy?
Was it entirely coincidental that high growth in the overall economy was contemporaneous with the mining boom?
Mining boom should never be limited to ‘job creation scheme’ only.
From what I understand, the State of South Australia gets only 2% of profit from mining industry. It is really a shame that the country is being plundered by multinationals with no benefit for the inhabitants. The mining companies do not seem to be responsible for anything they use: water resources, infrastructure, energy, etc. It is high time that the profit from this uncontrolled plundering were shared by the companies and the locals equally.
What I understand, the mining industry should not be allowed to use local resources unconditionally and the governments should treat our natural resources as the national treasure.
Big companies should be able to help build infrastructure in return: water desalination, solar energy, roads/transport facilities, etc. After all, unlike most of us, they have tax exemptions!
Otherwise, there is a nasty feeling that we are still a colony … up for exploitation.
With one and a half million people in South Australia, with all possible natural resources and minerals we should be the most opulent nation in the world.
What our governments have been doing instead, is to make sure that we live under a controlled poverty.
None of the State/Federal politicians from South Australia has ever even bothered to raise the question of our national riches and the benefit we should be getting as a State.
Our politicians should make some educational trips to Scandinavian countries and learn something for a change.
I guess, contrary to many West Australians, they weren’t ‘driving the Australian economy’ after all. Oh well, back to pre history here in WA with no day light savings and shopping hours once enjoyed by the rest of the first world country in 1965…
Excellent article Bernard. Equally excellent comment Rena Zurawel.
Of course we are still a colony; we’ve got a foreign head of state to prove it. Also, there should be more to life that merely looking at this rape of our land as providing jobs. Yes, jobs are created, but not as frequently as they used to be. Now there are giant machines doing the words of dozens of miners.
What our wretched politicians should demand is the covering of phased-out mine sites with wilderness or parks something decent and worth having.
The ultimate betrayal of Australia is evidenced by our giving to China and Japan, huge tanker loads of LNG-3 cents a litre I think-whilst storing none of it for ourselves.
As with Steve Fielding, our politicians take expensive overseas-FACT FINDING- trips. The facts they find could be found by anyone with access to a computer. It’s the freebies they love.
Do you know the worst example of pigs in the trough ministries? Don’t know if it still goes by this name, but it used to be called ‘The Minister for war-graves ‘Ha! there are a zillion war graves in this world and it used to be first-class travel as well. Ah the joys of being a colony.
Rena and Venise, I recommend a trip to somewhere like the Democratic Republic of Congo before decrying how the Australian mining industry is run. Not only would you find out what ‘controlled poverty’ really means (and never again use such a phrase to describe any state in Australia), but you’d also see what sort of disasters can unfold when governments treat natural resources as ‘the national treasure’.