How to bring Western Australia to its knees

How to bring Western Australia to its knees, by Andrew Pickford.

Democracies have debated the allocation of proceeds from natural resources ever since the discovery of the famous silver mines in Laurion outside of Athens. Unlike Classical Greece, where voters decided to channel earnings into naval assets, some citizens in Western democracies view the profits made by mining and energy firms as an unearned rent to be redistributed. The redistribution is often directed to unproductive members of society as well as mendicant regions or industries.

Those who view mining profits incorrectly as “super profits” fail to understand that there is substantial risk in finding, extracting, refining, transporting and selling commodities. For each success, there are many failures. Commodity cycles shift. Operational costs vary. When there is a discovery, entrepreneurs will make series of decisions based on an understanding of property rights, leasing terms and company tax structures. Sometimes millions and billions of dollars need to be invested before there is a cent of revenue.

Many will remember the now-defunct Resource Super Profit Tax. Rudd and Swan sought to punish high performing Western Australian mining companies and redistribute funds to vote-rich eastern states. In historical terms, they are not unique. Older readers may remember Rex Connor from the Whitlam-era and similar tactics deployed by Canadian Prime Minister Pierre Trudeau. In time there will emerge yet another socialist, eastern politician who gleefully identifies a successful industry he or she wants to tax, appropriate or even nationalise.