A pity prosperity depends on mining

Renown economist, Professor Henry Ergas, has a must read piece in today's Australian on the effects of the carbon tax on our economy:
Reducing mining investment is not collateral damage from the carbon tax: it is integral to achieving its objective of shrinking the carbon intensive components of Australia's economy. As Treasury found, because of the tax, "the (Australian) mining sector experiences a significant decline in rates of return. As a result, investment falls significantly."Pity our prosperity depends on mining. And pity too that the tax was introduced just as minerals prices went into steep decline, making the pain all the greater...

But the carbon tax is merely the latest environmental policy burden. A proliferation of regulations has ensured the volume and detail of environmental impact statement requirements verge on the absurd.

Olympic Dam project, for example, is not in a class A nature reserve like Barrow Island, where the Gorgon project must tip-toe around 1.3 per cent of the land area. But even so, its initial EIS for the now shelved expansion required 29 chapters, 51 appendices and, thankfully, an executive summary. Not to be outdone, the subsequent supplementary EIS numbered 35 chapters, 51 appendices and 13 information sheets but, curiously, no executive summary.No surprise then environmental approvals for major resources projects now take four years or more, from notification to state governments to commonwealth approval...

So why do we do it? Follow the money (bolding ours)...
There is no evidence whatsoever that the environmental benefits associated with these requirements come close to justifying their costs. But to use the mot du jour, they do yield slush funds for greenies -- such as the obligation Burke just imposed on the Alpha coal project in Queensland to pour millions of dollars into a trust "to conduct research on the black-throated finch and the squatter pigeon". Nor does it end there. So as to ensure the unions also get their snout in the trough, the Fair Work Act makes it virtually impossible to start work on major resource projects without union approval.

The inevitable result?
Out-Whitlaming Whitlam by a factor of five, this government has been increasing public spending each year it is in office by nearly $1000 per man, woman and child. With the International Monetary Fund forecasting our structural budget balance will be in deficit until at least 2017, that additional spending must come from somewhere. So must the unfunded commitments to the National Disability Insurance Scheme and the Gonski report, as well as election approaches.

Already, Ken Henry and Treasury Secretary Martin Parkinson have said tax rises are inevitable. What better target than mining ventures that, once the capital is sunk, can hardly pack up and leave? With the minerals resource rent tax in place, it would be simple to raise its rate and extend its scope, as this government did to offshore gas. Further cutting the diesel fuel rebate would also be straightforward, with the recent reduction in the rebate increasing gross project costs for the now postponed Olympic Dam expansion alone by at least $1 billion.

Those measures would have the enthusiastic support of the Greens, for whom any excuse to slug mining is a good one. And with Julia Gillard having imposed more retroactive tax hikes on business than any previous government in Australia's history, another bout of tax grabs at mining's expense by a re-elected Labor-Green coalition can hardly be ruled out. Such actions would require a lethal dose of ignorance. But bad habits cast long shadows. These are the people who brought you the resource super-profits tax, the MRRT and the carbon tax. Little wonder mining investors are skittish. They should be. And so should you.

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