Mining in Australia – wealth for a nation or benefit for a few?

The mining industry is often quoted as one of the main drivers of the Australian economy and while a few see a threat in it, many claim that due to heavy regulation, it was a safe industry. What are the facts and who actually benefits from mining?

It can’t be denied that so far mining has been one of the main pillars of the Australian economy. According to the last trade figures of the Department of Foreign Affairs and Trade iron ores, coal, gold, natural gas and crude petroleum were the top five merchandise export commodities in 2011 accounting for a total of 56.8% of the overall export share with a total value of AUD 140’000 Mio.

But does this really benefit the Australian economy and in particular the country’s citizen?
Theoretically yes, because legally most (in some states all) ores belong to the Crown (in right of the State) no matter on whose land they are found. However, what seems morally right is not what happens in real life.  In practice mining rights are negotiated between states and the developer, which is referred to as a “state agreement” or “franchise agreement”.  In return to selling the extraction rights, what the commonwealth and the states get back from mining are some royalties and possible revenue taxes from company profits.  Unfortunately these payments are very little compared to the huge revenues mining generates. A report published by treasury shows that due to increased market value of the sold ores, royalties and company taxes together have decreased from approx. 40% in 2001 to less than 20% in 2008 relative to the overall revenues!

tax and royalties inefficiencies
What that means in practise shows an example brought forward by Helen Lobato about a book published by Matthew Benns: Fortescue Metals gets a profit of $200’000 for every $240,000 of sold iron ore. Of this the commonwealth receives about $27’000 in taxes and the state around $12’000 in royalties. The Yindjibarndi, the traditional owners of the land being mined, receive $136.

Considering that Australian citizens pay up to 30% income tax on their salaries or other incomes (which are gross revenues, from which individuals still spend expenses for rent, food etc., whereas the above mentioned taxes for mining companies are already on net benefits!), which they generate year for year, whereas ores can only be extracted once ever, these incredible low taxes for mining companies do not make any sense at all.
Instead, they explain why mining brings huge benefits for a few, an assumption supported by the fact that the list of the richest people in Australia is led by two well-known mining characters and that many more tycoons of the said sector make it into the same list.

And this is only one aspect. There are others to follow. One of them being of actual interest due to climate change, the Kyoto agreement and Australia’s (unconditional) commitment to reduce carbon emission until 2020.

Against the targets of the Kyoto protocol and the aim to urgently reduce carbon emissions, Australia is further mining fossil fuels to burn them in power-stations for the production of electricity; all this, despite the fact that there are far greener technologies to produce electricity and that Australia is one of the countries subject to high vulnerability as a result of climate change.
What is worse, the mining sector is even encouraged to extract more of those resources by benefiting from incentives such as lower taxes on gasoline.
It should thus not surprise, that Australia ranks 17th among the G20 nations as regards low-carbon competitiveness, as a report published by the Climate Institute earlier this week has revealed.

low-carbon competitiveness

While the country has “seen a fragile reversal of its score on the Low-Carbon Competitiveness Index since 2008”, it is now back on track on where it was between 1995-2000. Or in other words, the improvement is only relative to the year 2008 – compared to 1995 it didn’t change at all! The reason for this rather disappointing outcome are “a highly polluting power sector, economic dependence on emission-intensive exports, inefficient use of energy, extraction of natural capital” and lack of innovation.

Whereas mainly emerging countries have understood the need to invest in renewable and more climate friendly energies, Australia doesn’t seem to be able to get rid of all schemes and, instead, keeps getting exploited for the profit of a few individuals instead of looking towards a cleaner future for the benefit of all. As the report further explains, “the competitiveness of carbon intensive economies depends on the degree to which they can adapt to these new parameters.” In other words, we need new concepts, a different focus and investment in education, research and innovation. Why not doing this with revenues generated through mining?

Ironically, only a few extractive economies, such as Indonesia and China, have picked up this simply idea and made use of exactly those benefits to invest in formation and education. As a result these two countries have made a huge leap forward, China being now number three in low-carbon competitiveness and Indonesia having improved from being the worst of the G20 nations to be ranked 14th, well ahead of Australia.

So what should be done?

Considering that resources exploited through mining are finite and can only be extracted once, net revenues for mining companies should be reduced to a minimum through accordant taxing. This could simply be done by increasing these taxes from currently 20% to fro example 98%, leaving mining companies still with more than enough incentives and the commonwealth and states with funds to invest in research, education and innovation.

Even better would be a system under which mining companies would have to bid for a future development. And then the best would be contracted to do the work for the state, not to exploit the resources in their interest. This would result in only the best companies getting the license and net benefits fully flowing into treasury and not the pockets of a few lucky ones.
As a result commonwealth and the states would have enough money to invest in low-carbon competitiveness, long-term employment, safety and prosperity for all!

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About blaubear

Born in 1973 in a small village in rural Switzerland and into a society largely dominated by cows (not only was the human population of one-hundred-and-forty outnumbered by them, but politics driven by unreasonable subsidies for diary products) I was connected with nature from early age on. Observing nature on one hand and the deficiencies of a dysfunctional Swiss agricultural policy with farmers that had lost connection to the land that provided their income on the other, I soon started to question society and the meaning of life. Suffering also under a farcical public education I developed curiosity to discover on my own. That was how I soon learned that little of what I had been taught was true. Skepticism and interaction with people from for me new cultures fostered my interest for the world and eagerness to leave a life shaped by federalistic layman-ship. At the age of twenty-three I hit the road for the first time, an event that later translated into passion. Traveling between cultures has since become part of my life. At the age of thirty-three I finally realized my dream and did a degree in Environmental Engineering from which I graduated in 2009, only to leave Switzerland once more for my "real home" Spain. Unfortunately, the stay was a short one: a couple of months later I was offered a job in Southeast Asia, where I worked and also lived (with some interruptions, e.g. I live in Melbourne since late 2012) ever since. Having worked for a Japanese company earlier in my life, I soon felt captured again by Asian culture and thinking which makes a lovely contrast to my European heritage. My journey through different countries and cultures has taught me that regardless of how different our thinking and values are, no matter what approaches we take, we all can learn from each other. And if we are open enough to see the common instead of pointing out the differences, then we have a chance to live in harmony and peace: Life is all about integration, not exclusion! It's an old wisdom that "knowledge is power", as such I never get tired of being around new people, having interesting talks, and reading lots of good books. I hope that my blog can contribute to the conversation.
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6 Responses to Mining in Australia – wealth for a nation or benefit for a few?

  1. fireflycyy says:

    It’s a miracle that the australia economy heavily depends on mining industry and at the same time actually manage to prosper for decades. Comparing Australia with Thailand, obviously, if a country choose to depend on one single source, mining is better than tourism, regardless the price they pay in terms of environment and so on.

  2. website says:

    Im impressed, I must say. Really rarely do I encounter a blog thats both educative and entertaining, and let me tell you, you have hit the nail on the head. Your idea is outstanding; the issue is something that not enough people are speaking intelligently about. I am very happy that I stumbled across this in my search for something relating to this.

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