27 Sep 2012

A Mining Boom Unlike All Other Booms?

By Sarah Burnside
We have a short memory when it comes to economic good times. As we discuss the health of the current mining boom, it’s worth considering the debates that took place around earlier peaks, writes Sarah Burnside
There is trouble in the Quiet Continent.

Newspapers report on formerly ascendant companies' staff layoffs; the iron ore price is falling; and anxious concerns are being raised about whether we are witnessing the end of the boom years. Amid questions about whether Australia has gained from or squandered this period of growth in the mineral sector, arguments about the Mineral Rent Resources Tax (MRRT) continue.

Rarely, of course, is the end of a boom welcomed. Instead, each economic peak is the subject of fervent hopes that it will prove the norm rather than the exception.

Consider Australia's late 1960s/early 1970s mineral boom. In 1967, David Fairbairn, federal Minister for National Development, wrote that "in modern parlance there is some suggestion that a 'boom' is a prelude to a 'bust'", concluding that he therefore preferred to characterise the mining industry as "having entered an era of unprecedented large-scale expansion and diversification". Notwithstanding the language used to describe it, though, this era came to an end in the mid-1970s during a national and global economic downturn.

Political reporting often fails to use events from even the recent past to make sense of contemporary controversies; Crikey has editorialised scathingly on the "perpetual present" of the nation's press gallery, referring to a general lack of any context going beyond the day's talking points. Given the current focus on the "end of the boom" and questions about how wisely our governments have managed this period of growth, it is timely to consider previous debates on appropriate policy responses to a mineral resources boom.

Impassioned arguments surrounding the ill-fated Resources Super Profits Tax (RSPT) and its successor the MRRT have been a near-constant news fixture since 2010, yet few commentators have noted a historical parallel from our not-too-distant past — the late 1960s and early 1970s witnessed protracted debates about the mineral sector's contribution to the nation's wealth and wellbeing, and in 1974 a Labor government increased taxes on the mining industry, to the latter's displeasure.

Let's set the scene. Since Federation in 1901, and particularly following the Second World War, successive governments sought to encourage mineral exploration and production in Australia. Their efforts included tax concessions available only to resources companies, such as exemptions from tax of all profits from gold mining, and of one-fifth of profit from 30 other prescribed products; the ability to write off immediately as against profits capital expenditure for items (such as infrastructure and drilling equipment) which were not depreciable items for tax purposes for other companies; and the capacity to write off other capital expenditures (such as dwellings and communal non-profit making facilities) more quickly than other companies.

These concessions reflected a set of interlinked convictions: that Australia needed to industrialise, grow, and develop; that mining would assist in these aims; and that it was therefore necessary to provide incentives for mineral resource development.

Accordingly, the boom of the late 1960s and early 1970s was largely welcomed. There was however growing unease about both the nation's reliance on resource industries in general and the levels of foreign ownership and control of the mineral sector in particular.

On 11 April 1974 the Sydney Morning Herald, citing ABS figures, reported that in the years 1971-72, the industry was 47.8 per cent foreign-owned and 54.3 per cent foreign controlled. (As The Australia Institute noted in 2011, these figures have since significantly increased). Donald Horne famously charged in 1965 that his homeland was "a lucky country run mainly by second-rate people who share its luck", and some feared that the nation's good fortune rested on shaky ground.

Labor came to power in 1972 with Gough Whitlam promising to depart from traditional approaches to Australia's mineral wealth. The new government's initiatives in this area were numerous, including export controls and foreign investment guidelines, and in 1973 Minister for Minerals and Energy Rex Connor commissioned economist T.M. Fitzgerald to report on the mineral industry's contribution to Australian welfare.

The report, released in 1974, queried the conventional wisdom that mining was inherently beneficial to Australia. Fitzgerald noted that his compatriots had "been conditioned to regard business capital expenditure as the engine of growth and enhanced welfare" and that, accordingly, the boom had been met with "general unfocussed reactions of euphoria". He concluded, however, that due to the concessions "the Australian Government ha[d] finished in the red". By his calculations — which were of course subject to critique — during the period 1967-1972 federal government assistance to the mineral sector exceeded tax receipts from mining companies by $40 million.

The government invoked the report to argue that under the Coalition the country had effectively "been paying to be exploited" by multinational mining companies, and during the 1974 election campaign Whitlam declared that Fitzgerald's findings would be "the starting point for the formulation of policies aimed at maximising the return to Australia of her natural endowments of mineral and energy wealth". In turn, Coalition spokespeople criticised Fitzgerald's methodology, characterised his Report as "limited" and "emotive" and argued that the benefits the nation had gained from the boom outweighed the costs.

Labor narrowly won the 1974 election and amended the tax scheme for resource companies: it cancelled the exemptions for prescribed minerals (although it left the gold exemption in place); disallowed deductions for capital expenditure incurred on company formation and capital raising; and prevented companies from appropriating out of one year's income sums intended to be spent on development the following year. The Coalition opposed these changes, arguing that they would cruel the mining industry's future development in Australia and lamenting that "the management of our mineral and energy resources has made us the laughing stock of the world".

After the Whitlam government's dismissal and election loss in 1975, the Coalition returned to power under Malcolm Fraser, and in 1976 it passed its own tax amendments: for instance, capital expenditure on facilities used to transport minerals was made deductible on a straight-line basis over either 20 years as previously or 10 years, at the taxpayer's discretion, and expenditure on port facilities was included in the category of capital expenditure attracting special deduction provisions. Fraser later concluded that his government "provided much better tax breaks for business to encourage investment" and "modified taxation for mining".

Australia's brief and turbulent experiment in "resource nationalism" seemed to be over — the traditional pro-mining, low taxing approach had been challenged but not overturned.

Moreover, these events seem largely to have been forgotten. They have been overshadowed by other ideological battles of the Whitlam era and the circumstances surrounding the Dismissal, including Connor's role in the 1975 loans affair. Even the recent and ongoing mining tax debates have seen only a few references to the Fitzgerald Report: The Australian reported that "Rudd's resource tax grab" evoked the "feisty" Rex Connor; ABC Radio National's Rear Vision program covered parallels and differences between the two governments' approaches to minerals and energy in a rather more considered fashion, and David McKnight pointed out that struggles over the mining tax followed a familiar pattern.

The Fitzgerald Report and its fate show that the hoariest of clichés can be true — history really does repeat itself. There have been a great many changes in the Australian political scene since 1974, but some things, such as the difficulties governments face in setting taxes for the resources sector, remain the same.

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outrider
Posted Friday, September 28, 2012 - 09:47

Outrider
'Instead, each economic peak is the subject of fervent hopes that it will prove the norm rather than the exception.'
Yes indeed, Slowly the fervent hopes are becoming more muted.
Opening for good academic research monograph on this theme right through Australia's history. Not just minerals, I can remember the wool boom of the 1950s.

jackal01
Posted Sunday, September 30, 2012 - 20:56

Thank you Sarah Burnside and that is exactly why Gough was tossed, thats why Rudd was tossed and thats why Gillard got cold feet with the MRT and watered it down.

My comment:
How is it that Iran was a secular democracy until 1953 when the Mosadeq Gov nationalised the Oil Industry to be overthrown by USA & UK with their Operation AJAX and installing of the Shah prompting the rise of the religious Right.
Mosadeq was going to nationalise the Anglo, Irania Oil Corporation which went on to become BP. And BP had been ripping us of for years, BP England would sell us Oil out of the Atlantic at huge prices and BP Australia would sell our resources to BP England for almost nothing.
BP Aust never made a Profit so never payed Taxes.

And Your Comments that prompted my responce:
"Labor came to power in 1972 with Gough Whitlam promising to depart from traditional approaches to Australia’s mineral wealth. The new government’s initiatives in this area were numerous, including export controls and foreign investment guidelines, and in 1973 Minister for Minerals and Energy Rex Connor commissioned economist T.M. Fitzgerald to report on the mineral industry’s contribution to Australian welfare.

The report, released in 1974, queried the conventional wisdom that mining was inherently beneficial to Australia. Fitzgerald noted that his compatriots had "been conditioned to regard business capital expenditure as the engine of growth and enhanced welfare" and that, accordingly, the boom had been met with "general unfocussed reactions of euphoria". He concluded, however, that due to the concessions "the Australian Government ha[d] finished in the red". By his calculations — which were of course subject to critique — during the period 1967-1972 federal government assistance to the mineral sector exceeded tax receipts from mining companies by $40 million.

The government invoked the report to argue that under the Coalition the country had effectively "been paying to be exploited" by multinational mining companies, and during the 1974 election campaign Whitlam declared that Fitzgerald’s findings would be "the starting point for the formulation of policies aimed at maximising the return to Australia of her natural endowments of mineral and energy wealth". In turn, Coalition spokespeople criticised Fitzgerald’s methodology, characterised his Report as "limited" and "emotive" and argued that the benefits the nation had gained from the boom outweighed the costs.

Good work Sarah Burnside, you should add a few remarks about Muslims, you'd get a few more people interested I'd say. Its a wonder their not blaming Muslim for the failure of the MRT.

jackal01
Posted Sunday, September 30, 2012 - 21:02

Not just minerals, I can remember the wool boom of the 1950s.

We went to war in WW2 to save our Landed Gentry which was the 3rd richest in the world. It didn't work, blew our entire Gene Pool and England went broke, it was meant to. To save our Landed Gentry we started to subsidise them rather heavily and we dumped it into the Black Hole of the Russian Economy, this way Commodity Prices were protected, kept high and the mountain of wool dumped so as not to cause another over production scandal.

So, it was all a Joke realy, Corruption.
Too many Poms in our Governments due to the Proportional System.

Examinator
Posted Tuesday, October 2, 2012 - 14:08

Jackal01,
We seem to be talking at cross purposes. I read your contributions with interest. There is no doubt that they are interesting takes on historic information. Clearly like me you read widely even eclectically .

As I've said before simply amassing information on it's own is pointless unless it first has a WHY ...what problem are you trying to resolve. Hence my view of an education alone is largely 'much ado about very little' as it doesn't supply the other necessary factors .
Insight comes when one knows *what* to do with that information (application).
Wisdom comes with knowing *how and When* to apply that knowledge and insight.... aka context.

I don't think it's meaningful to get too bogged down in battles of economic theories. As the article you posts implies infinite growth in a finite environment is an impossibility of scientific principals.... unless...you are into God's who can create something from nothing. In which case he'd better get his wand out soon or the Gabriel needs to start tuning up God's Brass section or the final fanfare.

In reality economics is a soft "science" It's theories can't be used to predict, tested, proved or repeated. They are at best trend related , base on assumptions and statistical significances given those "assumptions" . Primarily because it can't identify, define, let alone measure all the contributive factors. A key broad one is the Human element.

Give all these unknowns, unknowables to then simplistically label them as (externalities as justification to ignore them) then base a system on an impossibility strikes me as a definition of insanity (doing exactly the same things and expecting a different result) or religious faith.

It's a bit like a neolithic humanoid being asked to explain the cosmos.....our first attempts were to create capricious gods. next we determined that we were the centre of the universe and so the story goes.
When are we going to stop propping up a flawed (idiotic) concept by simply creating new versions of the same self destructive concepts of how things run.

Simply put and in context with Ms Burnside's article yes it is simply +or - of every other boom and bust....(refer the definition of insanity)
It is as clear as the holes in the ground of the mining 'industry' we need to consider a different system one that takes into count the lessons in the history you post.

jackal01
Posted Tuesday, October 2, 2012 - 20:35

We seem to be talking at cross purposes.

You and I don't talk at X purposes, I agree with everything you say.
Our problem is there are 7 billion people out there that Mother Nature can no longer feed. Farmers are never going to give food away for nothing, so money and money markets to make money are going to be with us for a while yet.

So, while money is with us we are going to have Nations competing against each other to feed their people, people they can't afford, but need to consume the junk that everybody makes for a job and to earn an income.

It was overpopulation that made it difficult for countries and while they struggle to feed, they will look for ways to ease the burden.

The History I post here is supposed to show us why it happened and that nothing has changed and just as then we could end up at war again.

So, my point is what is the point of breeding like Cane Toads when we are only going to kill them in a war, because it is the young who fight wars, the old only arrange them, make it happen.

Most people believe that we killed for freedom and democracy, good guy verses bad, hence we never learned or fixed anything, we taught our children that it is OK to be stupid as long as you tell everyone that you did it for Freedom and Democracy, no evidence or facts required.

Its time humanity faced up why we killed, not greed but over population and the collapse of economies, which made murder to survive acceptable.

It was the movement of people out of the eastern block into Germany that enraged those who had to move sideways to make room for the new comers.

We see the same thing now right here in Australia with the influx of Kiwi's, the Irish and English.

Their is an Irish owned company doing tax purse funded Infastructure work here. They bring in Young Irish Men on work visas, put them into company owned/rented houses for 4 month helps them get properties to rent etc.

While Australians are getting beaten around the head for being unemployed in country regions, so they travel to the cities where they can't find accomodation and /or jobs because of it, so they return to the country to live with Mom and Dad to give up.

Why do young Country Bumpkins or even young Australians of Lebanese background or what ever have to move sideways so that Ireland can have a population of 8 million, yet apparently has 58 million Irish Passport Holders.

Now I can feel for these people and most that I know a fantastic people and wouldn't bother me if I didn't know that Australians are being denyed those Tax Purse Funded Jobs and still getting harrased for being unemployed, getting their dole monies cancelled for not complying for all sorts of reasons.

Its not as if these imports I know are going to Perth Mines, no they are working on Infastructure Programs put in place to give local people a chance in a 2 speed economy only to see those Jobs go to an Irish, English or Kiwi import.

Will Australians get as cranky as so many Germans did and vote for someone like Adolf or Pauline Hanson.

Its all relevant, its time we had this talk, we can't keep on breeding like the Irish. It seems that Irelands only and greatest export seems to be its young. And, its not only the Irish, no the English and the Kiwi's and every other human is just as guilty, thats why WE are here.

So, until we can accept that we did it before we can't and won't fix it. We need truth and history to show us our mistakes.

james17
Posted Saturday, September 21, 2013 - 19:51

Perth Mines, no they will work on Infastructure Applications put in position to provide natives a opportunity in a 2 rate economic system only to see those Tasks go to an Irish, British or Kiwi fruit transfer. ED Solution

Erabir
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