Australia: the land of lost revenue

May 8, 2024
3D rendered concept of the state of the economic and finance markets in Australia.

Australia once thought of itself as a country of opportunity and innovation – economically and socially. Like most countries self-beliefs, the thought was not always matched by reality. Indeed, it would arguably be better to see Australia as a land of lost opportunities with many of those losses being biggest and most damaging in recent decades.

A comparison of the royalties received by the two biggest natural gas exporters – Norway and Australia – illustrates one of our greatest missed opportunities.

The Norwegian government estimates that total revenue from their oil and gas sector in 2023 will be about $A327 billion with the public receiving, from Norway’s 78% tax on oil and profits and dividends from state owned operators, $A209m billion.

The comparable figures are $A164 billion in total oil and gas revenue and just $A16 billion in government revenue.

One of the obvious consequences is Australia’s feeble sovereign wealth fund – the Future Fund – having $A272 billion in assets compared with – the Norwegian Fund’s $A1.7 trillion wealth fund in assets.

In a July 2022 paper the Nordic Policy Centre and The Australian Institute by Daniel Blakely and Sumithri Venkatasubramanian undertook a detailed comparison of the two and also looked at the assets of other similar funds. Australia’s Future Fund ranked 17th pipped for 16th place by Iran. Others doing better than Australia included China, Abu Dhabi and Kuwait.

The paper said: “Norway’s approach to natural resource management is premised on common ownership using revenue from the resource centre to ensure long-term stability and security for all.”

Former Norwegian PM, Jens Stoltenberg said: “The natural resources in the ground, that’s something we own in common. It’s not private ownership.”

In contrast, in Australia it is the views of Gina Rinehart, promulgated from the back of a semi-trailer wielding a loud hailer, which persuades politicians stopping similar stuff happening in Australia.

The Norwegian Fund’s purpose is to invest fossil fuel industry revenues obtained into more sustainable sectors to provide for the security of Norwegians and the country in the future. The Australian Future Fund, in contrast, was set up to fund public service pensions.

The Norwegian Fund now has shares in more than 9,000 companies in 70 countries and has a 1.3% stake in the world’s publicly listed companies.

The revenues – with withdrawals limited to the real returns of the Fund – contributing almost 20% of Norway’s annual budget.

The authors say the Fund is prohibited from investing in Norwegian companies, infrastructure, real estate, or securities denominated in Norwegian kronor to decouple the Fund from the Norwegian economy.
It could have all been so different for Australia. The Mineral Resource Rent Tax implemented in 2012 followed on from the Henry tax review. That tax levied a 30% on the super profits from mining iron ore and coal.

When Tony Abbott came to power, he repealed the tax. Despite lots of polling demonstrating that the public supports making multi-national companies paying more tax the opportunity continues to be lost.

Abbott – with the help of a massive scare campaign – contributed to another major lost opportunity by destroying the carbon price legislation. What it might have meant can be illustrated by the experience of the EU where their emissions trading scheme has reduced emissions by 47% compared to 2005 when the scheme was launched.

According to The Economist (27/4) “Emissions fell by a steep 15.5% in 2023 largely driven by reductions in carbon from electricity generation and industry. EU countries added 17 gigawatts worth of windmills and covered roofs and fields with 56GW worth of new solar panels.”

While we are still arguing about derisory carbon emission reduction targets The Economist points out that the EU’s 2023 target of a reduction of 55% by 2030 is in reach and that modelling suggested the 2040 90% target would be able to be reached. The EU is still maintaining a net zero target by 2050.

Now Peter Dutton will point to the role of nuclear in Europe, but EU nuclear capacity is only around 100GW – less than the current output from renewables – and all from a land mass with far less sunshine than Australia.

Indeed, if Dutton did embark on a nuclear strategy the first plants would be unlikely to be completed before the EU meets it’s 90% target.

Another perspective on the issue is provided by Tim Harford (Weekend Financial Times 27/28 April 2024) who looked at Moore’s Law Wright’s Law. The first is well-known but the second not so much. Wright’s Law basically says that the more you make the cheaper it gets.

Harford points to a new book, Making Sense of Chaos by Doyne Farmer, which shows that Moore’s Law and Wright’s Law provide a foundation for forecasting the costs of different technology.

“Moore’s Law suggests that products get cheaper over time because they are cheaper and then get demanded and produced in lower quantities. Wright’s Law suggests that rather than falling costs spurring production, its mass production that causes cost to fall. Henry Ford might well have shook his head and snarled – “well I knew that didn’t I?”

The implication for Australia is that Albanese might be on the right track with subsidies for solar PV if they are able to get the benefit of both Laws. Moreover, as Harford writes “Moore’s Law suggests that good things come to those who wait. Wright’s Law says that good things come to those who act.”

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