Australia’s prosperity depends on mining

A leading professor of economics says if Australia didn’t have such a rich reserve of resources the nation would be the poor white trash of Asia.

Speaking at a mining conference in Sydney, Professor of Infrastructure Economics at the University of Wollongong, Henry Ergas said it is bizarre how some politicians and the wider community treated the “foundation on which our prosperity is built”.

“This is the only industry in this country that seems to have to justify its existence,” Ergas said.

“If Australia didn’t have these resources we would be the poor white trash of Asia.

“And yet that reality is accepted at best very begrudgingly.”

Pointing to high cash costs and regulatory burdens, Ergas argued that doing business in Australia has become less attractive, and warned the industry risks losing market share to cheaper countries if major changes are not implemented.

With the boom slowing as Australia moves into a phase where the rest of the world is no longer prepared to pay whatever is asked for resource exports, Ergas warned the burdens which were placed on mining companies are no longer sustainable in this production period of the boom.

“When you’re in an absolute seller’s market, you can be relatively inefficient, you can have all kind of burdens placed on your back – but because demand is so strong, even though you’re no longer the peak performer – you still get the prize,” he explained.

“But in the production phase – when margins are no longer as big as they were – then it really is all about relative costs.

“Our problem in Australia over the years has been the difficulty we have in culling relative costs as we enter that phase.”

With cost competiveness more crucial now than ever before, Ergas says the Australian resource industry is also suffering from an ineffective tax system.

“We are the advanced economy that has the greatest dependence on taxing companies as a source of tax revenue,” Ergas said

He argued that the share of tax revenue that comes from company taxation is higher than any other OECD country, with the exception of Norway.

“But with serious issues of structural budget shortfalls, the difficulty in cutting company rates are obvious,” he said.

Instead, Ergas highlighted the benefits of removing unnecessary regulatory burdens, which he says are a form of a tax because they require companies to perform in a costly manner.

Ergas says removing the burdens associated with unnecessary regulations and red and green tape would be the equivalent of cutting the company tax rate by a third.

And with high tax rates discouraging investment, many mining firms are breathing a sigh of relief as the one-stop approvals shop promised by the new Federal government starts to take shape.

The new framework aims to slash green tape and fast-track approvals for mining developments.

“The one-stop-shop will slash red tape and increase jobs and investment, whilst maintaining environmental standards,” Environment Minister Greg Hunt wrote in a statement.

To achieve a single environmental approvals process, the Federal Government will sign a memorandum of understanding with each willing state.

With Queensland already signed up, New South Wales is the next state to give the reform a chance this week, signing a Memorandum of Understanding with the Commonwealth that seeks to implement the changes.

The Minerals Council of Australia welcomed the move, saying that a national system was long overdue.

“This important breakthrough… is another significant step in the long struggle to untangle green tape without compromising protection of the environment,” chief of the MCA, Mitch Hooke said.

And while moves by the Federal government to abolish the MRRT and Carbon tax will also help to restore confidence, Ergas says more need to be done.

“Whatever one may say about Work Choices, it’s clear that the Fair Work Act was a big move backwards and has created problems, perhaps some of them unintentionally, that really need to be addressed,” he said.

Ergas also pointed to the migration regime, which he says need finessing to ensure foreign labour is a way to secure gains for the next phase of the boom.

On top of this, a wider understanding of how mining contributes to the wider economy will also help, and according to Ergas, is long overdue.

He says Australia has squandered eight major mining booms and says the right policy settings are crucial to ensuring this boom isn’t lost as well.

However, with the new Federal government starting to deliver its pre-election promises aimed at bolstering the mining sector, many in the industry are optimistic a much needed confidence boost is not far off.

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