Two Controversial Mining Projects in Australia: Some Questions on Their Socio-Economic Viability

Abstract

This paper deals with economic analyses of two mining projects in Australia – one on the Liverpool Plains in New South Wales and the other on the Galilee Basin in Central Queensland. The adverse environmental and social externalities of these projects are well known – especially the impacts on the Gunnedah and the Great Artesian Basins. Notwithstanding these impacts, private financial analyses demonstrate significant revenue gains to the mining firms and render expenditures on mining to be sound investments. Nevertheless, economic analyses illustrate that the net benefits to Australia are possibly absent even without accounting for environmental social externalities. Given that the property rights of the mineral reserves are vested with the State, the Resource Rent Tax (RRT) becomes a legitimate fiscal policy tool. The paper argues that the assessment of mining decisions, must account for the depreciation of the Mineral asset. When this depreciation is measured by recourse to the Hartwick-Rule, the mining projects demonstrate monetary viability only when the RRT is enforced and is invested in its entirety on options that generate annual returns in excess of 4 per cent. Whilst environmental and social externalities would readily wipe out this monetary viability, it is noteworthy that such viability is clearly absent for rates of investment less than 3 per cent in the application of the Hartwick-Rule. Besides, with both projects, agriculture is a potentially dominant and viable alternative.