Time to ditch the windfall mentality about minerals and energy

It must be budget time again, because consultant Chris Richardson has emerged to prognosticate on the state of the national finances in one of the more pointless rituals of the fiscal calendar.

In a special treat, we’re having it twice in 2022 due to Labor deciding it wants its own crack at the 2022-23 budget after the previous government had a go in late March.

Richardson’s predictions were used by The Australian Financial Review to warn “tax payments as a share of the economy have hit a 16-year high and could surpass the former Coalition government’s tax cap”.

To which the appropriate answer is, so f***ing what? The Coalition’s “tax cap” of 23.9% of GDP was a piece of political fiction designed to obscure the fact that the Coalition was the big-taxing party of Australian politics under successive governments. And it was utterly inappropriate given that the Coalition permanently increased spending to 27% of GDP or thereabouts, locking in a decade of deficits back in March.

Only at the AFR would something so discredited still be taken seriously.

We’re also warned over and over again about the “windfall” nature of tax revenue sourced from energy and mineral exports, which are set to deliver a surge in tax revenue courtesy of the war in Ukraine and sanctions on Russia.

It’s true that extraordinary external circumstances have seen a big spike in energy prices, although they’ve fallen from the highs of earlier this year. And as we’ve found in previous budget cycles, overestimating the price of iron ore can lead to big swings in revenue for the Commonwealth.

But treating mineral and energy receipts as random “windfalls” that are in effect a sugar hit to government coffers only serves the interests of mineral and energy companies and their media cheerleaders.

Today, for example, New Hope Corporation (controlled by prominent Liberal Party supporters the Milner family) showed that it has become the latest once marginal, now viable thermal coalminer to benefit from the Ukraine invasion. New Hope reported a 1200% jump in net profit to A$983 million in 2021-22. It did pay a big increase in tax: $417.6 million on a pre-tax result of more than $1.4 billion compared with $31.3 million on a pre-tax result of just $110 million. That’s all thanks to thermal coal prices surging from less than A$100 a tonne back in mid-2021 to more than A$400 at the end of the financial year (and they remain above A$400 today).

New Hope joins other previously marginal coalminers such as the Chinese-controlled Yancoal Australia and the locally owned Whitehaven. Both reported much larger results than New Hope — well over A$2 and A$3 billion.

The question is: is that enough tax or should companies using the country’s patrimony be paying more (after all the usual deductions such as depreciation and wages)?

Australia is a mineral and energy superpower, and will continue to be so into a decarbonised future. In fact, if anything, our ownership of vast stores of crucial renewables-economy minerals like copper and lithium will present revenue opportunities as big as those from gas and coal.

Prices will fluctuate with external events, but as the world transitions to renewable energy, gas, coal and oil prices will become less important, while mineral exports become ever more lucrative.

The “windfall” mindset obscures the fact that Australia should be ensuring that it is maximising its tax revenue from these exports, not treating them as a lucky dip that isn’t part of core fiscal policy. We’re already missing out on billions in tax revenue from gas exports because of badly designed tax arrangements for offshore gas. The risk is we fail to lock in appropriate tax arrangements for the next generation of big export revenue earners.

Minerals and energy are a core part of our economy. We tell ourselves that somehow these industries are too simple, that Australia isn’t sufficiently “complex”, that we should be moving up the value chain and into complex manufacturing. But those resources are a key national advantage, and we exploit them effectively. Our mining industry is the most advanced and innovative in the world, far ahead of the US in the exploitation of autonomous mining vehicles and remote-controlled trains, for example.

The results of that innovation and efficiency are not “windfalls” but the consequence of natural advantages coupled with a stable government, open markets, a highly educated population and strong capital markets backed by massive national savings — advantages few of our competitors have.

Instead of separating mining and energy revenues into a special category that can be forgotten when thinking about tax policy and how to address the structural deficit the Coalition handed us, it should be central to how we understand our economy and the sources of revenue to pay for a higher level of government spending.