For most, the benefits of mining boom have far outweighed costs

IF YOU haven't said it yourself, I bet you've heard others saying it: resources boom? What resources boom? Whoever's benefiting from it, I'm not. None of it's come my way.

Is that what you think? Well, don't kid yourself. Whether or not you realise it, you almost certainly have benefited from the boom.

But how have people who don't work in or near the mining industry benefited from the miners' good fortune in being paid way-higher prices for their coal and iron ore?

Short answer: everyone's benefited because, as Marx observed, in the economy everything's connected to everything else. Or, to put it in economists' lingo, we're all benefiting because of "the circular flow of income".

When I spend my income buying something from you, it becomes your income. Then, when you spend your income, that becomes the income of someone else, and so on, round and round.

The governor of the Reserve Bank, Glenn Stevens, observed in a speech this week that the higher prices the miners are getting have improved our "terms of trade" the prices we receive for our exports relative to the prices we pay for our imports by about 85 per cent above their 20th-century average.

This constitutes an increase in the nation's real income because the same exports now buy more imports. Stevens estimates the extra income is equal to at least 15 per cent of our annual income (gross domestic product). Although a substantial fraction of that income accrues to foreign investors who own large stakes in many of our resource companies, what's left still represents a very large boost to national income.

Stevens estimates that, to produce a dollar of income, the mining companies spend about 40? on "non-labour intermediate inputs" goods and services bought from other businesses. Most of the businesses would be Australian, but many would be from interstate.

Once the costs of producing the mining companies' output, and the taxes they pay, are taken into account the remaining revenue is distributed to shareholders or kept. While a big proportion of the earnings distributed goes overseas, local shareholders also benefit.

Most of us are shareholders in the mining industry through our superannuation schemes. We don't get this income directly to spend now it's in our super. "Nonetheless, it is genuine income and a genuine increase in wealth," Stevens says. His rough estimate suggests that about 10 per cent of our superannuation assets $130 billion is invested in resource companies.

A good proportion of the earnings kept by mining companies is being spent on building gas plants and mines. Stevens estimates that about half the demand generated by these projects for building and manufacturing is met locally.

In contrast to the operation of mines, building them is labour-intensive. Workers are attracted from throughout Australia, which creates job vacancies in the parts of Australia from which they come and puts upward pressure on the wages paid to people in the relevant occupations whether or not they make the move.

Now, all the taxes the mining companies pay. The federal government's company tax takes 30 per cent off the top of the companies' profits.

It was booming company tax collections that prompted the Howard government to offer cuts in personal income tax for eight years in a row. So if you've enjoyed any of those tax cuts you can't claim to have had no benefit from the resources boom. The mining companies also make big royalty payments to their state governments as a price for all the publicly owned resources they pull from the ground.

But even if you don't live in Western Australia or Queensland you've benefited from this revenue. How so? Proceeds from the federal government's goods and services tax are divided between the states using a complicated formula that has the effect of spreading the royalties proportionately between states and territories.

Yet another less than obvious way the proceeds from the resources boom have been spread around is through the exchange rate. The main reason our dollar is so high is the high prices we're getting for our exports of minerals and energy. And the high dollar has reduced the price of imported goods and services.

So every business that buys imported equipment or components benefits from the resources boom, as does every consumer who buys imported stuff which is all of us. If you've taken an overseas holiday, for instance, you've benefited. If you've bought petrol, you've benefited because the higher dollar has reduced the effect of the rise in the world price of oil. Now, if you want to argue that our non-mining export and import-competing industries have been harmed by the boom-caused rise in the dollar, that's true. In economics, nothing that has benefits comes without costs.

So it's fair enough for those in adversely affected industries to argue that, for them, the costs of the resources boom have outweighed the benefits. But they're a minority. For the great majority of us, benefits have far outweighed the costs.