Evan Davis, in his excellent book Made in Britain, makes the case that there are three basic rules or principles that all economies tend to follow:
‘first, a country will build its economy around the resources it has available. Second, a nation will deploy these resources in the highest-value activities that they can find. The third guiding principle is that as things change, nations adapt.’1
The Institute believes that best course for the New Zealand economy in the long-term is to evolve in an intellectual direction; producing hi-tech goods with minimal environmental impact, rather than tapping the mineral wealth of the country for short-term gains. This national discussion flared up during the debate about mining on conservation land in New Zealand with the government eventually backing down in the face of public opposition, but it is likely that this will not be the end of the discussion.
In Australia however, mining is big business and currently a major pillar of the economy, though not without its problems. The resource sector in Australia represents almost 20% of the Australian Stock Exchange (ASX) by capitalisation and almost one third of the companies listed on the ASX.2
Australia’s mining boom has gone a long way toward supporting its manufacturing, retail, tourism and service sectors; which traditionally representing the largest employment sectors, while mining. Despite its contribution to the economy, the mining industry employs less than 2% of the workforce.3 There is also a sizeable amount of money flowing offshore; 80% of the mining shares are owned overseas and most of the Australian shares are held by super funds whose job is to save, not spend.4
In April 2012 the Minerals Council of Australia took out a full page advertisement in The Weekend Australian to highlight how increasing taxes on mining operations could affect the competitiveness of Australia’s mining industry. The advertisements were part of a pre-budget release campaign to strike out against potential tax rises in the resource sector. It points out the number of new taxes it has to pay and that the mining industry is committed to paying its fair share, but in order to be able to do that, ‘the strength of Australian mining and the contribution it makes cannot be taken for granted.’5 The advertisement makes the claim, both through the text and the front-and-centre graph, that Australian mining already pays 500% more taxes and royalties than 10 years ago. The graph shows the company tax and royalties paid by the mining sector increasing steadily over the decade. However, where this graphic falls down is that it fails to show any relationship between the growth in tax and royalties and the growth in profits for the industry.
A 2009 report by the Australia’s Future Tax System Review Panel, Australia’s future tax system: Report to the Treasurer, highlighted that the total resource tax and royalties as share of resource profits was in fact steadily declining.
‘The current charging arrangements distort investment and production decisions, thereby lowering the community’s return from its resources. Further, they fail to collect a sufficient return for the community because they are unresponsive to changes in profits, particularly output-based royalties. For example, existing resource taxes and royalties have collected a declining share of the return to resources over the recent period of increasing profitability in the resource sector (see Chart 6.1).’6
The graph provided by the Minerals Council of Australia fails to provide any context for understanding how the taxes paid by the mining industry relate to the profits they have made. This hurts the claim that ‘we are committed to paying a fair share of royalties and taxes towards Australia’s future prosperity’.
In order for the public to be able to make informed decisions on matters of national importance they need to be engaged in good faith with good information. There is a wealth of useful research being conducted by entities such as the Australian Productivity Commission and the Australian Treasury assessing the impact of regulation on the mining industry. This provides good quality public information informing the national discussion. Information that is distorted or omits important details does not help this cause. We must be able to ask the tough questions, and for that we need the right data.
- Davis, E (2011). Made in Britain: How the Nation Earns its Living. Little, Brown: London. Page 152.
- Australian Stock Exchange (n.d.). ASX and the Australian Resources. Retrieved July 23, 2012 from http://web.archive.org/web/20060422141538/http:/www.asx.com.au/investor/industry/mining/asx_involvement.htm
- The Australian Institute (n.d.). Just how important is the mining sector to Australia?. Retrieved July 23, 2012 from http://www.tai.org.au/?q=node/252
- Colebatch, T (2012). ‘Our economic irrationalism’. The Sydney Morning Herald. Retrieved July 23, 2012 from
http://www.smh.com.au/opinion/politics/our-economic-irrationalism-20120312-1uwde.html - Minerals Council of Australia (14 April 2012). ‘Australian Mining. It’s not a bottomless pit’. Advertisement. The Weekend Australian. Print.
- Australia’s future tax system (2009). Australia’s future tax system: Report to the Treasurer. Retrieved July 23, 2012 from http://taxreview.treasury.gov.au/content/downloads/final_report_part_1/00_AFTS_final_report_consolidated.pdf