Too much of a good thing? The macroeconomic case for slowing down the mining boom

by Richard Denniss and Matt Grudnoff

The Australian mining boom has been driven by rapidly rising world commodity prices. Put simply, the world is now willing to pay much higher prices for our coal, iron ore, gold and other resources than they were 10 years ago. For example, gold prices have risen from about 400 $US/ounce in 2004 to about 1600 $US/ounce today. Since 2004 coal and iron ore prices have roughly tripled.

The mining industry has worked hard to focus the public and political attention on the question of ‘is it better or worse to have a mining boom?’. The more important question is ‘what rate of growth of the mining industry is consistent with the national interest?’.

The fact that the world is willing to pay higher prices for our commodities is, on balance, a positive development, especially if well designed resource rent taxes ensure that the benefits of the mining boom are evenly distributed across society. However, it does not follow that because a boom in the world price of Australia’s resources is likely to improve Australia’s wellbeing that the faster new mines are developed the better off Australians will be.

Despite the stated concerns of the mining industry with the new Mining Resource Rent Tax (MRRT) and the carbon price, investment in new mining and energy projects is currently running at record levels. Indeed, according to ABARE there are currently 94 mining and energy projects that are deemed to be at an advanced stage of development. The total capital value of these projects is estimated by ABARE to be $173.5 billion.

The purpose of this paper is to consider a feature of the mining boom which has been barely considered in the Australian policy debate to date, namely, how fast should the mining construction boom be allowed to develop? That is, while it is clearly in Australia’s interests that the world is willing to pay record prices for our natural resources it is not nearly as clear that it is in Australia’s national interest to simultaneously develop 94 new mineral projects.

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