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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