Australian government has squandered spoils of mining boom: Grattan Institute

Australia's mining boom of the past decade has brought $400 billion worth of investments to the country, created thousands of job and provided funding for many government initiatives. But Victoria-based think-tank The Grattan Institute says the Commonwealth has done a poor job of saving the proceeds of the boom for rainier days.

As the investment phase of the boom tapers off and declining global commodity prices take their toll on the industry, Grattan warns that national income and state revenue will fall; the Australian government must tighten its purse strings to prepare for the storm ahead, the report advises.

The institute addresses major criticisms of the mining boom – Australia's largest since the 1850's gold rush – and argues against most anti-mining allegations.

"Some believe that the high dollar caused permanent damage to trade-exposed industries such as manufacturing, tourism and international education," the study reads."Some believe the boom will end in a severe recession. Others believe the Commonwealth Government mishandled the boom by failing to save much of the windfall it has generated."

All these claims are unfounded, the think-tank argues, with one exception: The state did indeed squander the profits of one of the largest income boosts the country has ever seen.

By under-taxing and over-spending while protecting struggling industries, law-makers may have jeopardized the state's fiscal future. Instances of extravagant spending include $63 billion in subsidies doled out to the declining manufacturing industry since 2003 – this amounts to about $70,000 per worker in that sector.

"Funds have opportunity costs: they could be used to retrain workers rather than to prolong careers in unviable sectors," the institute says.

With the current volatility of commodity prices, the country cannot afford to rely on these industries for steady income streams.

"Public sector saving has been too low," according to Grattan. "Governments have made spending and tax decisions that have produced almost no net savings from a decade of elevated resources prices."

The institute also advocates for a comprehensive minerals resource tax.

Australia is "unusually" resource-intensive, the report claims – exporting more fuel, ores and metals than most OECD states.

"Governments in resource-intensive economies are usually advised to build a buffer during the initial period of elevated resources prices," the study reads – something the Australian government has not done.

Despite these findings, Grattan notes that this is not evidence of a “national crisis of under-saving" and that its not too late to make policy changes now. Also, the country is not likely to be thrown into recession should commodity prices erode further.

The Grattan Institute is an independent, non-partisan think-tank formed in 2008. Housed by the University of Melbourne, the organization has received funding from the federal and Victorian governments as well as $4 million from Australian mining-giant BHP Billiton.

Creative Commons image by: Alex Davenport