The special case of the mining industry and the State budget

16 Jul 2014

The mining industry likes to consider itself special.

Tax laws that apply to other industries don’t apply to miners, as the controversy around Glencore’s tax bill shows.

Planning laws get changed when miners don’t like them, as the NSW government showed with Rio Tinto last year in the Hunter Valley.

And lately it seems that the rules of accounting don't apply to them either.

In accounting, money coming in is called revenue and money spent is expenditure.

Mining lobbyists talk up the revenue they provide to governments, but there’s little discussion of government expenditure on the mining industry at all.

A recent report by The Australia Institute (TAI), based on state and territory budget papers, shows that State governments spent nearly $18 billion of taxpayers’ money on the minerals and fossil fuel industries in the last six years.

The Queensland Government, for example, spent $3.5 billion on rail projects for its coal industry, while Western Australia spent $1.6 billion on roads specifically for miners. NSW and Victoria spent hundreds of millions on “clean coal” research.

Despite the fact that Treasury records billions of dollars worth of spending on the minerals and fossil fuel industries, the Minerals Council of Australia said it was an “affront” to the industry to suggest it received any assistance at all.

A more considered defence of the industry by economist Henry Ergas confirmed that the industry does receive taxpayer support. It went on to question the usefulness of including billions of dollars of publicly funded infrastructure, contained in the TAI analysis, on the basis that some of that money would be recouped in the future.

He may be right. The charges Queensland’s coal miners pay to use publically funded railway lines may eventually cover the cost of building them. One day “clean coal” research might become commercially viable technology, but there is no analysis to back this up.

The question then, is why are taxpayers making such massive and risky investments in coal infrastructure at a time when we can't find the money to invest in education or health?

We’re told health care needs to be cut due to budget pressure, even though every public health expert knows it is cheaper to invest in preventative health now than it is to treat illnesses later. 

Up-front investments in education pay large dividends in the long run, but try getting Joe Hockey to spend up on education.

When it comes to taxpayer-funded coal transport or subsidised mining exploration programs, mining industry supporters like Dr Ergas take the opposite approach. They tell us not to worry about the short term costs, but instead to think about long term, uncertain, economic gain.

The point raised by Dr Ergas is an important one. How should we account for government spending which delivers future benefits? Should we focus on the upfront cash, or should we focus on the long run returns?

In years gone by, Treasury budget papers used to distinguish clearly between capital spending now and recurrent spending over the long term. Politicians used to focus on the 'recurrent deficit' not on a surplus in a particular year.

But for more than a decade, business groups and conservative politicians have been conflating recurrent and capital spending, and telling us to focus on 'unsustainable' budget deficits.

Even if we accept the view that we should look past the short-term costs of public provision of mining infrastructure and focus instead on the long-run net benefits, the public needs a lot more information before we can accept the miners’ assurances that our money is well spent.

Firstly, each State government should provide a clear annual summary of all infrastructure that is wholly or primarily intended to assist a specific project or industry.

Secondly, the likely rate of return on this investment must be published, along with all assumptions on which that estimate was based.

Thirdly, the risks associated with each assistance package should be clearly spelt out. For example, if coal prices fall, what will happen to payments to the taxpayers who funded a coal loader or rail line?

Finally, the expected return on investments in health, education, public transport and other areas of government spending should also be provided so that we can feel confident that, of all the places State governments could have invested $18 billion, they have made the best possible choice.

None of this information is available for most of the projects described in our report. Until we have it, the mining industry will continue to argue that they receive no government assistance, while simultaneously arguing that the assistance they do receive is repaid through royalties and user charges.

It’s not surprising that the mining lobby endlessly talks up the benefits of their industry to the broader community. These claims are central to their strategy to shift attention away from the harm they cause to our environment, health and communities.

What is surprising is that it has taken a decade of the miners’ exaggerated claims for someone else to piece together the other side of the ledger.


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