Too Much Luck: Paul Cleary skewers Australia’s mining boom

Eight years into a seemingly never ending resource boom, Australia is plundering a million tones of minerals every year from the ground. New industries such as LNG have signed contracts to quadruple exports in 10 years to rival coal and iron ore in earnings. It is a vast and vital natural resource governments appear to be willing to fritter away frivolously at 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 issue.

Cleary is a senior writer with The Australian newspaper and a researcher in Indigenous development at the Australian National University. In a 20-year career 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 how to deal with mining companies with undue influence on public policy. Australia needs to make changes in savings, taxation and regulation 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 ends and Australia has considerably less 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 three years leading to the GFC, the Howard Government blew $334 billion in 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. 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 employ far more people than the mining companies. This leads to Dutch disease and the paradox of the two-speed economy. Other industries don’t have the power of the resource lobby who work on politicians devoted to the quick fix of mining royalties. The State Governments are hooked on these royalties making a mockery of their dual role of industry regulator. Cleary said Australia will be the world’s second largest CSG exporter despite only having the world’s 12th largest gas reserves and despite the fact 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 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 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 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.

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