Forgive my absence at such an anxious time but I've been away on holiday in Western Australia, walking bits of the Bibbulmun Track, which runs from Perth to Albany. The wildflowers were unbelievable. And so was the affluence in Perth, where the mining companies' skyscrapers are so tall they can be seen from Rottnest Island, 19 kilometres away.
Forgive my absence at such an anxious time but I've been away on holiday in Western Australia, walking bits of the Bibbulmun Track, which runs from Perth to Albany. The wildflowers were unbelievable. And so was the affluence in Perth, where the mining companies' skyscrapers are so tall they can be seen from Rottnest Island, 19 kilometres away.
How'd you like to be living in Perth, in the winners' circle where everything is on the up, not doing it tough in Sydney or Melbourne, on the wrong side of the two-speed economy?
Actually, things in Perth aren't as wonderful as it suits envious easterners to imagine. Know what they complain about in the West? The two-speed economy. Most of them think they're missing out. Some people may be raking it in, but not me. I'm not on some fabulous salary, just paying the exorbitant house prices the well-to-do have brought about.
Now where have I heard that before? What is it about Australians at present - on both sides of the continent - that makes them so convinced they're missing out and battling to get by?
According to polling by Labor, 68 per cent of respondents believe average Australians aren't benefiting from the mining boom. Is that how you feel? If so, you haven't thought about it. As someone said, there are more things in heaven and earth than are dreamt of in your philosophy.
After such a long plane trip, I was half expecting WA to be like another country. And it's true they have things we don't: magnificent tall trees - jarrah, karri and marri - and strange animals such as quokkas. But step into the bush and it's very much part of Australia: gum trees everywhere, kangaroos and kookaburras.
It's the same story economically. They may have huge reserves of natural gas and iron ore that we don't, but their economy is really just a corner of the greater Australian economy. As the locals are the first to tell you, a lot of the money they make soon finds its way into the pockets of people Over East.
For a start, there are no customs barriers between the states, so there's a lot of trade between them. Step into a WA supermarket and you see they're selling just the same stuff ours do. Which means most of what they're selling was manufactured on the east coast.
Their big mining companies have been making huge profits for the best part of a decade. Nothing to do with you? Every east-coaster with superannuation has a fair bit of their savings invested in the shares of those big companies. So you've been getting your cut.
Your super's been looking a bit sick in recent years? That's mainly because of problems in the rest of the world. Whatever you've got, it'd be looking a lot sicker without the resources boom.
Those mining companies are subject to the federal government's 30 per cent tax on company profits. And the feds' company tax collections have been massive since the resources boom started in the early noughties.
Do you realise that under Howard and Rudd we had cuts in income tax eight years in a row? Where do you think the money came from to finance those cuts?
In the economy, everything's connected to everything else. So if you're conscious of only the direct connections you're missing a lot of the story. And no connection is more indirect - or mysterious - than the way the governments of NSW and Victoria have been benefiting from the good fortune of the WA and Queensland governments.
This arises from our longstanding commitment to the principle of ''horizontal fiscal equalisation'' - which holds that all Australians, no matter where they live, are entitled to the same quality of government services.
That ain't easy, particularly because most government services - education, hospitals, law and order, roads - are delivered by the states. The cost per person of delivering services varies with how big and decentralised the states are. But another factor is the states' varying capacities to raise revenue. These days, states gaining royalty payments from their big mining industry have considerable ''taxable capacity''.
To bring horizontal fiscal equalisation about, the Commonwealth Grants Commission does many intricate calculations which determine how the $48 billion-a-year proceeds from the feds' goods and services tax are divided among the states. The commission works out the average amount of GST paid per person throughout Australia, then decides whether each state requires more or less than that, per person, to be able to deliver services of equal standard.
This equalisation process was introduced in the early 1930s to mollify the restive West Australians. Until just a few years ago, it meant Victoria and NSW got a lot less than the national average, while South Australia and Tasmania got a lot more than average and Queensland and WA got a bit more.
In 2004-05, NSW got just 83 per cent of the national average GST paid per person, while Victoria got 84 per cent. WA got 104 per cent and Queensland got 107 per cent (with SA getting 123 per cent and Tasmania 171 per cent).
But the huge increase in the resource states' taxable capacity thanks to booming mining royalties has changed all that. This financial year NSW's cut has risen to 96 per cent and Victoria's to 90 per cent, whereas Queensland's cut has fallen to 93 per cent and WA's to - get this - 72 per cent.
It works out that, in effect, Queensland's benefit from its mining royalties this year will be reduced by $1.2 billion and WA's by $2.5 billion. Of their combined loss of $3.7 billion, NSW gains $1.3 billion and Victoria $1.8 billion.
Still think you're getting nothing from the boom?
Ross Gittins is the economics editor.
Frequently Asked Questions about this Article…
What does the phrase “two-speed economy” mean in Australia?
The “two-speed economy” describes how parts of Australia—especially resource-rich states like Western Australia and Queensland—are booming thanks to mining and gas, while other parts (for example some eastern capital cities) feel they’re not sharing that growth. The article explains it’s partly perception and partly real differences in local job and housing markets driven by the resources sector.
Are average Australians getting any benefit from the mining boom?
Yes — although many people feel they aren’t. Polling cited in the article shows 68% believe average Australians aren’t benefiting, but the author points out indirect channels: most Australians with superannuation hold shares in large mining companies, and higher company tax and royalties from mining have boosted federal tax receipts that helped fund tax cuts and public services.
How do mining company profits flow to everyday investors through superannuation?
Big mining companies have been very profitable for years, and superannuation funds typically hold a portion of those company shares. That means returns from mining companies—dividends and capital gains—contribute to many people’s super balances. The article notes super would likely look a lot worse without the resources boom.
What is ‘horizontal fiscal equalisation’ and why does it matter for investors and taxpayers?
Horizontal fiscal equalisation is the policy that aims to make sure all Australians can access a similar quality of government services no matter where they live. It matters because GST revenue is redistributed between states based on need and capacity to raise revenue; as a result, resource-rich states can lose some of their mining windfall to other states, affecting state budgets and how public services are funded.
How does the Commonwealth Grants Commission work out GST distribution between states?
According to the article, the Grants Commission calculates the average GST paid per person across Australia (from roughly $48 billion a year in GST) and then assesses whether each state needs more or less than that amount per person to deliver comparable services. That intricate set of calculations determines how GST proceeds are divided among states.
Why are Western Australia and Queensland losing money even though they have big mining royalties?
The rise in mining royalties increases those states’ ‘taxable capacity,’ and the equalisation system reduces their GST shares to keep service standards similar nationwide. The article gives figures: this financial year Queensland’s benefit from royalties is cut by about $1.2 billion and WA’s by about $2.5 billion, with much of that revenue effectively redistributed to NSW and Victoria.
Did mining profits help pay for tax cuts in Australia?
Yes. The article notes that the federal government’s company tax receipts (the 30% tax on company profits) have been large during the resources boom, and those collections helped fund consecutive income tax cuts over several years under the Howard and Rudd governments.
My super balance looks weak — would it be worse without the resources boom?
According to the article, yes. While superannuation balances have been under pressure in recent years because of global problems, the resources boom has provided support via profitable mining company investments. Without that boost, many people’s super balances would likely look even weaker.
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