Pouring Fuel on the Fire

Nature & extent of federal government subsidies to the mining industry

Matt Grudnoff

The following is the introduction to Policy Brief No 39 (April 2012) of The Australia Institute. The downloadable web source of the entire paper is:

https://www.tai.org.au/file.php?file=/media_releases/PB%2038%20Pouring%20fuel%20on%20the%20fire.pdf

Introduction

The mining industry is receiving substantial assistance from Australian taxpayers worth more than $4 billion per year in subsidies and concessions from the Federal Government alone. Amazingly, this is at a time when the industry is earning record profits. Significantly, the subsidies and tax concessions set out below do not even include the cost of providing the mining industry with infrastructure or the substantial State Government subsidies they also receive.

The mining industry is booming on the back of high mineral prices with many commodity prices having tripled since 2004. This has led to large profits. According to the Australian Bureau of Statistics (ABS) total pre-tax profits earned by mining firms operating in Australia were more than $51 billion in 2009-10. The high mineral prices are also feeding a frenzy of investment and expansion with Australian Bureau of Agricultural and Resource Economics (ABARE) estimating that energy and mineral projects worth $173.5 billion have been started or committed to.

With the resources boom in full swing it appears counterintuitive that the government is subsidising the mining industry. Government subsidies are often used as a way of supporting important industries at times when they are financially vulnerable. This is clearly not the case for the mining industry. In turn, there does not seem to be any reason why these subsidies are in the national interest. With the mining industry so profitable these subsidies are not supporting the industry, but instead are simply increasing the size of their profits and placing greater pressure on other industries such as manufacturing, tourism and education. Put simply, these subsidies represent a transfer of funds from taxpayers to the owners of mining companies operating in Australia – most of which are foreign owned. The usual economic justifications for subsidising an industry do not seem to apply to the mining industry in Australia and there has been little justification for such large public generosity.