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Managing our mining windfall


Too Much LuckWhen treating themselves to luxuries such as travel or a new car, retirees sometimes make light of the fact that they are spending the kids' inheritance. 

Their feelings are mixed. They are enjoying the fruits of their life's labour, and of their stewardship of the wealth they themselves have inherited. They are also diminishing the pool of wealth available to subsequent generations of their family.

Hopefully they can avoid guilt and unnecessary self-sacrifice by hitting the 'sweet spot' that represents their present and future family's common good, where both current and subsequent generations are provided for in equal measure.

We also need to formulate policies and enact legislation to do this as as a nation. Forward thinking for the intergenerational common good is relevant to many areas of public policy that are currently being shaped. Examples include aged care and the curbing of carbon emissions. 

Politicians are tempted to make policy on the run that appeals to voter greed rather than the instinct to provide for a better life for future generations. But they don't need to. Kevin Rudd won the 2007 election with policies that included addressing the 'moral challenge' of climate change. His fortunes changed when he turned his back on this.

The policy area that cries the loudest for responsible stewardship at this time is mining revenue.

The current resources boom is allowing some Australians to live the good life while much of the rest of the world, and many fellow Australians, endure one of western civilisation's worst economic recessions. Australia has more wealth than it knows what to do with. Author and researcher Paul Cleary calls it 'dumb luck' in his new book Too Much Luck: The Mining Boom and Australia's Future.

He says many other countries — and indeed Australia during the 1890s — have previously been caught by the resource trap: a heady period of boom and growth, followed by a painful bust. We can make the boom last through a serious and immediate commitment to a sovereign wealth fund that is protected from likely attempts of politicians to raid it. 

Cleary cites Norway and East Timor as examples of countries that are preserving wealth for future generations. Paradoxically Australia tends to believe that it can teach East Timor about nationhood and has nothing to learn from our small neighbour.

He says that while we have have Timorese students coming here to learn about how to manage their oil sector, we should be sending people to East Timor to look at their example because it is one of the most outstanding examples in the world of how to safely and wisely manage oil revenue.

'They effectively set up a fund which is the equivalent of Australia having set up a $2 trillion fund in the space of six years. They weathered the global financial crisis, they've got their money locked away, they're spending it in a responsible way, unlike we do in Australia.'

Most importantly he identifies what is necessary to establish such a fund, and it's something other resource-rich countries such as Norway, Chile and East Timor have but Australia lacks — real political leadership.

Michael MullinsMichael Mullins is editor of Eureka Street.

Topic tags: mining, wealth, recession, inheritance, sovereign wealth fund, East Timor, resources, Rudd



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Existing comments

We seem to have the attitude that if it's there we should exploit it immediately - there's bound to be more where it came from!

It sickens me when I hear mining company spokespersons saying that what they are doing is good for Australia. What a lie!

ErikH | 19 September 2011  

I agree that we are burning and wasting resources essential to future generations. I also agree that we should look at the model of Norway instead of having a feast of plenty to ensure poverty to future generation. I always proposed that we should forget the issue about global warming but instead look at the issue of intergenerational resource sharing. We will never get agreement on global warming, but we can protect our environment and conserve resources including non-renewable fossil fuels in the interest of future generations. We can act now or future history will regard as the most stupid and selfish generation ever on this planet.

Beat Odermatt | 19 September 2011  

We need to relook at the mining tax as proposed by the 2010 Henry Tax Review. Natural Resources ethically belong to the nation as a whole. We must demand good management and stewardship of these resources from our governments. We must not allow governments to take the unfair easy option of increasing taxation on enterprise which miners easily sideline. Ethical taxation of the future will mean that we tax the communal wealth of all our natural resources and diminishing the taxation demands on workers businesses.

Anne | 19 September 2011  

I read that Indonesia is moving to ban export of unprocessed mined materials. that is, Indonesia is going to make it illegal to dig Indonesian dirt up, and ship it to some other nation where the value is extracted from the ore.

This tells us that Indonesia recognises that if value-adding is not carried out in Indonesia, than Indonesia is not obtaining maximum value from allowing mining.

Can Australia do this? You bet.
1. Impose a mineral resource rent tax.
2. If the mined resource is converted to metal (eg zinc, copper, nickel, steel) in Australia, then an exemption is granted on the mineral resource rent tax.

We need to remember that export markets for metallurgical coal will end over the next couple of decades, as the world abandons using coke to make steel. Instead, the world will turn to electrolytic reduction of iron ore (as is already done for aluminium) from a molten salt bath.

Australia would do well to start developing these processes, so that it will be ready to supply steel instead of iron ore.

David Arthur | 19 September 2011  

On paper, Timor has good fund. Unfortunately, Timor is bending its own rules on its petroleum fund and is currently spending it an unsustainable rate.

John | 19 September 2011  

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