Western Australia provides a masterclass in what not to do with a resources boom

It wouldn’t be too unkind to suggest that Western Australia is not considered as the national benchmark of sophisticated public policy. Indeed, the state has recently attracted much attention – and derision – for the way its policy making elite squandered the wealth generated by the resources boom.

True, we now have more sports facilities than you can poke a stick at, not to mention a major makeover of the city foreshore – albeit noticeably empty of the promised high profile developments that were supposed to succumb to its irresistible allure. But you can’t accuse the Barnett government of not having big ideas.

Funding them has been another issue. Quite how WA managed to emerge from the once in a lifetime mining boom with an estimated debt burden of $40 billion by 2020 and a projected budget deficit of $4 billion is one of the West’s great mysteries. Or not, if you bother to look at what happened to all the riches the boom generated.

WA Nationals leader Brendon Grylls certainly has, and that’s why he’s launched a rather lonely campaign to make the miners pay more tax. Even though this fiscal horse has long since bolted, he’s got a point. Not only did the big miners pay a measly 25 cents per tonne royalty to the WA government – a rate fixed in the early 1960s – but the WA government actually subsidised the miners throughout the boom.

According to the Australia Institute, taxation revenue across Australia in 2013-14 (before the collapse in prices) only accounted for about 5% of government revenues. In WA this situation was made worse by a subsidy regime that gifted the big miners some $6 billion at the height of the boom. No surprise that Grylls is on the warpath given his signature ‘Royalties for Regions’ program has been an early casualty of a more austere era.

Was this wasted opportunity and fiscal failure inevitable? Absolutely not. Not only have we been here before and should have learned similar lessons from the boom and inevitable bust of the 1970s, but other countries have been much cleverer in the way they have handled their good fortune.

Every policymaker in Australia should be made to read Paul Cleary’s excellent analysis of the way Norway handled its boom: Trillion Dollar Baby. The experience could hardly be more different and the comparison would be laughable were it not for the fact that future generations will come to rue the folly and myopia of our current leaders.

The key lesson that emerges from Cleary’s analysis is that even small states can have a big say in determining what happens to the windfall revenues booms generate - but only if they understand what is happening at present and have a plan for the long term future of the country.

Norway had both. First, they had a capable government and skilled bureaucrats (yes, they are valuable and important) who quickly realised that Norway’s oil boom had to be managed for the benefit of Norway, not the multinational oil companies. This meant not being intimidated by powerful multinational corporations and recognising the inherent bargaining strength of national governments. You can only exploit resources where they are. Host governments can - and should - determine how they are developed.

In contrast to successive state and federal governments in Australia, this is precisely what the Norwegians did. First, they compelled the oil majors to build their required oil platforms in Norway, developing a world class manufacturing capability in the process. Secondly, and in another unflattering and revealing contrast to Australia, they ensured 90% of the windfall revenues derived from the oil boom in Norway remained there.

Norway’s “problem”, unlike ours, has been what to do with the astounding amounts of wealth generated as a direct consequence of its activist and enlightened policies. A third critical innovation was establishing a sovereign wealth fund.

Sovereign wealth funds serve two purposes. First, they put aside the windfall revenues of today for future generations – a possibility our own leaders seem incapable of contemplating given their truncated political horizons. Second, by investing most of the wealth overseas, they put downward pressure on the domestic currency, allowing other domestic industries to survive.

At a time when we are collectively waving farewell to much of the manufacturing sector, this is another sobering lesson – especially for the young who will not benefit from all that squandered wealth and may wonder where they will actually work.

The current debate – such as it is – in the West will likely go nowhere. Kevin Rudd’s demise is a reminder of what happens to politicians in this country who dare to take on the miners. The WA Labor Party is unlikely to be any braver or far-sighted on these issues than its federal counterparts. In short, don’t look to the West for a revolution in public policy. But if you want somewhere spacious and well equipped to kick a footie around…