Why higher mining taxes are good for the economy, our country and our kids
The huge uproar against any proposed new taxes on mining and resources will build for some time yet. A well-funded campaign will cry of lost jobs, investment driven off shore and Australia being uncompetitive. These cries will, as usual, be self-serving, short term and should be ignored by intelligent policy makers. Here’s why.
Resource extraction is very different to other economic activity. If Australia misses a trend like solar power, high-speed broadband or competitive manufacturing, it’s really hard and expensive to catch up. The economic opportunity train often leaves the station never to return. Resources are different. When a major global company threatens to take their wind turbine manufacturing offshore they can do just that. However when BHP goes and invests in a mine in Kazakhstan instead of Australia, our minerals, and they are our minerals, stay here. Is there loss? Yes, clearly investment leads to jobs, taxes and other benefits. So in the short term we lose some of that, but the question is at what cost in the medium to long term?
To answer that we need to consider the other way mining resources are different. Unlike innovation, knowledge and technology, which we create, mineral resources are limited and we can’t make any more of them. The global economy is already stretching our capacity to feed it with these natural finite resources. That’s why when we grow the global economy up against its physical limits, as we did in 2007 and 2008, the prices of things that come directly from the earth, like food and oil, rise so rapidly.
Where will this approach lead us? Let’s consider the current state of our system up against its limits, as having a starting measure of 100. This 100 number represents our current, strained system, where we have barely adequate resources to feed our economic and social needs. Then we plan to go to around 9 billion people by 2050. That takes us our system to 150. Then we plan to increase the per capita income (and consumption) in that time frame by around 2 – 3 times as well, taking our system up to 300 to 450. So if prices spike and the system shows strain at 100, guess what happens at 450? Resource prices go through the roof and they become highly priced and more carefully used.
The implications for the Australian economy are clear. We are sitting on a large proportion of the world’s incredibly valuable resources. These resources are of absolutely limited supply and their value will keep going up. And up and up. This means we have all the time in the world to extract them and the longer we leave it the more value we will get for doing so. It also means we should use the resulting income to the benefit of our long term economic security, not grab the quick bucks on offer.
We also have to learn, like the rest of the world, that an economy built on “stuff” is inherently risky when the supply of the original “stuff” is limited. So we need to use our resources much more efficiently and the higher the prices we pay for them the more efficiently we will use them. This means we needs to steadily shift our tax base away from employment, which we want more of, and tax stuff and pollution instead, which we want less of.
So as the debate rages over the next few months, consider both our economy and your kids economy. Think about Australia’s interests and don’t be hoodwinked by the minerals industries feigned concern for jobs (as if they don’t shed them whenever they have the chance!) Just observe the whole process with that great quote in your mind “Hell hath no fury like a vested interest disguised as a moral principle.”
How is this Updated?
Great exposition. Not only do we have a lots of valuable resources, which will always be in demand, we are a blue chip supplier. Consider what happened to the entire board of Sundance Resources in west Africa recently… they all died in a plane crash. Sort of changes the profit and loss equation. By comparison our air safety… and a whole lot of other safety factors…are a much better bet. You have to pay for that!
Alan you make a good point. Political risk is a huge cost and risk for resources companies and we should value our strengths there