The future prosperity of resource-rich states such as Western Australia is threatened by unnecessary regulatory roadblocks.
Capitalising on a possible market recovery, and unleashing the potential benefits of a second mining boom, can only begin by cutting the layers of red tape sitting between miners and the resources they seek to extract.
Australia’s has a red tape problem. Recent research by the Institute of Public Affairs, based on the World Bank’s ‘regulatory quality index’ and a methodology developed in the US, found that red tape costs $176 billion in foregone economic output every single year. That’s the equivalent of 11 per cent of GDP.
That new estimate is more than double the Abbott government’s 2014 estimate of $65 billion for two reasons. First, our methodology takes into account not just commonwealth law, but the body of state and local government law too.
And second, rather than asking government departments to estimate the burden of the red tape they impose, our top-down approach incorporates some of the unseen burdens of red tape: fewer jobs, fewer new businesses, and lower productivity.
It is this second point that is most poignant for the resource industry, and therefore for states such as WA.
The cost of red tape isn’t just the inconvenience of government approval and filling out additional forms. The real cost of overbearing government regulation is how it fundamentally changes the structure of our economy – distorting decisions and resources away from their most productive uses.
The resources industry in particular is subject to a byzantine array of by licenses, permits and approvals, that slow or prevent major projects, cost jobs and ultimately undermine Australia’s prosperity.
Earlier this year, for instance, recall that plans for Yeelirrie, one of Australia’s largest uranium mines in Western Australia, were halted by the Environmental Protection Authority because of a threat to 11 species of tiny ‘stygofauna’, or ‘desert prawns’.
According to the Productivity Commission, the costs of delaying an average sized project by just one year is in the order of $26 million to $59 million.
The Roy Hill project in the Pilbara required over 4,000 permits, licenses and approvals, including 1,057 environmental regulatory approvals, in the pre-construction phase alone.
With this unsustainable level of regulatory resistance it’s no wonder money funnelled into exploration is in precipitous decline.
Over the past four years, according to the Australian Bureau of Statistics, the money spent on minerals exploration in WA (excluding petroleum) has plummeted from $574 million to $220 million.
The trend for petroleum looks even worse: dropping from $955.4 million in December 2012 to $223.6 million in June this year. That’s a fall of over 70 per cent.
Exploration is critical to the long-term future of Australia.
It is of course the case that some of this trend can be attributed to cyclical economic forces outside our control, from commodity prices and changing global currents.
But it is equally clear that the government has a role in encouraging investment, and in particular competing for investment.
To reinvigorate our resources industry, and thereby the West Australian economy more broadly, governments at all levels must begin to wind back roadblocks on business.
Only by doing this can we propel economic growth, get more people into jobs, and pull ourselves back up the international competitiveness rankings.
We should be optimistic about the future of the mining in this country. A Newport Consulting report in June showed that 43 per cent of miners surveyed were optimistic about the year ahead. But 24 per cent of miners in that survey also said red tape was an issue, especially for project approvals.
To be sure, the West Australian government last year reinvigorated efforts to streamline project approvals. But more needs to be done. If Western Australia is serious about a second leg of the mining boom then the role of the government is to create a regulatory environment conducive to exploration and investment.
Cutting red tape is a real economic plan with tangible economic dividends – and ones that the public can understand. Cutting red tape promises to help unleash a second wave of prosperity from the West.
This article originally appeared in The West Australian.