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.
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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.