Mining booms and government budgets

Abstract

The different time paths of effects of a mining boom driven by an increase in demand or by an outward shift of supply on the revenues and expenditures of the Australian Commonwealth and State Governments are described using a partial equilibrium model. Theoretical arguments to replace the present system of royalties with one of the different forms of economic rent tax and to increase the average revenue collected are presented. Some of the practical challenges to achieve more efficient special taxation of mineral and energy resources are reviewed. In the Australian context, it is argued that the case for placing the windfall revenue gains of a mining boom into a sovereign wealth fund rather than the normal budget processes is not compelling. © 2012 The Authors. AJARE © 2012 Australian Agricultural and Resource Economics Society Inc. and Blackwell Publishing Asia Pty Ltd.