AUSTRALIA’S DISAPPEARING SOVEREIGN WEALTH
Convoluted and puzzling royalty and taxation laws for natural resources; thoughtless and often inept management by government; and the power allowed to the resource corporations has resulted in the loss of as much as hundreds of billions of dollars to the Australian people. The opportunity to maximise our wealth from the fossil fuel era is almost over – let’s not make the same mistakes in the future.
A BRIEF LOOK AT PAST MISTAKES …
In 1970, the then Gorton government recognised that the medium- to long-term prosperity of Australia would depend largely on responsible management of natural resources, particularly fossil fuels and minerals. To this end, the Australian Industry Development Corporation (AIDC) was established to bolster local 
ownership in the growing mining industry. Another important and farsighted policy of the Gorton government was to commence the most comprehensive underwater survey of Australia’s vast offshore geology. Over a period of more than ten years, an area of over 12 million square kilometres was surveyed, revealing huge amounts of information about offshore water depths, mineral deposits, and geologic structures promising hydrocarbon deposits of oil and gas. Much of this information would become unbelievably valuable in future years—particularly to foreign mining corporations
In 1972 the first Labor government in over two decades came to power under leader Gough Whitlam, and amongst the many social and cultural adjustments made by his government, perhaps one of the least recognised was Whitlam and his resources minister Rex Connor’s attempt to establish what would in effect be a government mining company and a National Investment Fund as an expansion of the AIDC so that all Australians could be invested in their resource development.
The Petrol and Minerals Authority (PMA), as the government mining company was named, would be involved in all petroleum, gas, and mineral development from exploration through to product refinement and assist in Australian ownership and control of energy and mineral resources. Whitlam and Connor were determined to end foreign control over Australia’s natural resources and wrest more control for the government and people. The conservatives of the day were suspicious, confusing Labor’s healthy nationalism with socialism, which they dreaded. Legislation for the PMA passed the House of Representatives and eventually the Senate, only to be overturned after the conservative Victorian government appealed to the High Court on what was basically a technicality.1
Australia had lost its first opportunity to benefit from what would become the bountiful wealth of a natural resources boom.
50 YEARS ON …
Australia is one of the world’s largest gas producers. Approximately 80% of gas produced in Australia is exported as liquified natural gas – LNG. According to fairly recent research by the Australia Institute2 over half of the gas exported from Australia attracts absolutely no royalty payment to Australia. In other words, the Australian people are gifting over half one their most valuable assets to multi-billion dollar multinational corporations.
Successive governments, always composed of one of the two major parties – at times by the Liberal Party and the Nationals as the Coalition, as well as the Labor Party at other times – are to blame for this shortsighted situation. For the two major parties, large political donations from corporate mining at election time seems to conveniently absolve them of a responsibility to their constituents to not undersell their sovereign wealth. It gives rise to a perception of bribery and avoidance of fair payments to the Australian community and a blatant lack of compliance to the wishes of a majority of Australians wanting action to alleviate climate change effects.
From the time of the Howard government, Australia has been sold short by both major political parties. The missed opportunity to establish a major sovereign wealth fund, just as Norway did with their bounty from North Sea oil, may never occur again. Instead of a ‘life-changing’ sovereign wealth of Norway see Addendum A, now worth approximately $US1.75 trillion3, Australia has the relatively insignificant Future Fund worth less than $AU300 billion4, not even enough to cover the extremely large cost of the AUKUS folly.
Australia’s Future Fund was started in 2004 using a portion of the funds from the sale of Telstra. Since that time the fund has been added to with what are best called “sub-funds” at different times, was at times managed by an American bank, and has received contributions from items such as the increase in the Medicare levy. The rest of the world has started weaning industry away from fossil fuels, and Australia has missed the opportunity to collect a fair share of the immense wealth from mining until now. It is not only the shortfall of gas royalties; the problem of Australia selling itself short goes back decades and involves a convoluted system of taxes, royalties, and tariffs with both federal and state governments involved.
A royalty is a payment made by the developer to the community as a purchase price for a resource. What should be a relatively simple transaction, as is the case in many other resource-rich countries, has become an extremely complex enigma in Australia. There is ambiguity in the system in just about every direction – different royalties charged by different states and territories; different royalties for different resources, and also in different states; a thinly veiled line between a royalty and a tax in many cases; royalties not being charged and/or collected in many instances; and, multinational companies hiding income in broad daylight behind loopholes left by our different governments are just a starting point.
Staying with gas, there has been $265 billion worth of LNG exported from Australia in the past four years (from 2024). The dollar amount of royalty-free gas exported in that time was $149 billion. Australians have gifted gas for LNG worth $149 billion to multinational corporations and their shareholders. One of the more painful aspects of this is that the Northern Territory exported $37 billion of the total $265 billion over four years and on that $37 billion, not one dollar in royalties was paid because of some quirky detail about commonwealth territories unable to charge royalties. Almost defies belief! For more detail, facts and figures on the bizarre nature of the Australian royalties system and how our current and past governments seem to have completely lost control of OUR assets see the link on REF 2 at the end of this essay.
There is little satisfaction for the federal treasury from the taxes paid by the miners. Through government oversight, fear and neglect over the years the taxation system is no less confusing than that of royalties. It is simple for international mining companies to avoid taxation in Australia. For example, the US parent company of Chevron borrowed cash at 2% and then lent the cash to it’s Australian subsidiary at 9%. The subsidiary repayments are an Australian tax deduction and thereby reduces Chevron’s overall tax liability. Not fair, but legal thanks to the successive Australian governments either turning a blind eye or just being incompetent. This along with other loopholes is common practice amongst all overseas corporations operating in Australia. The most recent figures available show that in 2020-21, Woodside, Exxon, Shell, Chevron, Inpex and APLNG paid no tax at all on a collective $34 billion of income. 2021–22 saw these companies’ income leap to $56.3 billion, on which just $454 million was paid in company tax. In comparison, Qatar produces only 50% more oil and gas than Australia but receives six times more government revenue from its oil and gas industry. Norway exports more oil and less gas than Australia, but expects tax revenue from oil and gas to be a staggering A$127 billion in 2023 alone1 & 2.
Between the power of the multinational mining companies wanting their almost “free” bounty to keep flowing, the states suspicion of the commonwealth whenever there are suggested changes to royalties and/or taxation for fear of losing some royalty income, and the unbelievable blatancy of the generous donations to both major political parties by the mining sector, there seems no way that this conundrum can be unravelled easily for the benefit of all Australians.
Even ardent supporters of renewable energy recognise the need to phase out fossil fuel over time. I have a poster in my window from the 350 organisation5 which says “NO MORE COAL AND GAS”. A couple of passers-by seeing the sign, questioned the validity of “no more coal and gas” in terms of our energy requirements, to which I responded – read the words, the message is no MORE coal and gas, not no coal and gas. Australia and the world does not need any new coal mine approvals and the jury is out on the question of further new development of gas. Given the rising concern in the community regarding the (bad) influence of fossil fuels on climate, any new gas development should be fully justified in terms of community need, not corporate profits. Needless to say there is enormous pressure from miners to expedite development of both coal and gas projects so profits can be reaped before the world stops fossil fuel use.
CONCLUSION
Try to imagine for a moment just how different Australia would be today had Whitlam and Connor been able to establish the Petroleum and Minerals Authority (PMA) in 1974. Successive governments would have extracted a fair royalty for every ounce or cubic centimetre of mineral and gas that has shipped out of Australia since 1974 and deposited a good proportion of those royalties into a sovereign fund that could conceivably be paying for a large proportion of health, education, NDIS, and cultural project expenses as well as ensuring renewable energy research and development was well funded.
50+ years on from the visionary ideas of Rex Connor, abandoned by conservative fear and lack of foresight, Australia is in much the same position. We’ve accumulated moderate wealth through good fortune rather than good management, and the fault lies with us all. We’ve let a stale two-party political system run our almost unbreakable and wonderful democracy for far too long. Both major parties have their good points, but all too often they are submerged by the party machine. Competent independent members and small party groups can complement the two major parties and bring fresh, independent thinking to our law-making body.
Unlike quite a number of major party members, independents standing for parliament have generally come from wide and varied vocations and lifestyles and can offer new perspectives.
One opportunity lost. There will be others. Inform your local member that you’re aware of the confused and dire state of Australia’s royalty and natural resources taxation system and that it needs to be completely overhauled, because those resources are once only, non-renewable, and can only be sold once. Only then can we look forward to a more benevolent sovereign wealth fund for Australia.
Addendums | References
A. Norway’s sovereign wealth fund (Statens pensjonsfond) is the world’s preeminent savings fund and has a current balance of approximately $US1.75 trillion (approximately 6 times larger than Australia’s Future Fund). The fund endures long-term financial stability that benefits both current and future Norwegian generations. As well as providing community welfare benefits, and helping keep personal taxation rates at a reasonable level, the dividends from Norway’s fund investments contributes to Norway’s conversion to renewable, clean energy.
2. Australia Institute https://australiainstitute.org.au/wp-content/uploads/2024/08/P1451-Australias-great-gas-giveaway-NT.pdf
3. Norges Bank Investment Management https://www.nbim.no/en/
4. Australia’s Future Fund https://www.futurefund.gov.au/
5. 350 Australia https://350.org.au/
Published: 3rd March 2025
Author: Robert Watson
Keywords: Sovereign Wealth, royalty, royalties. taxation, corporate miners, Gough Whitlam, Rex Connor, Petroleum and Mineral Authority, PMA, Sovereign Wealth Fund, Norway, Qatar, gas, LNG, Future Fund
Sources:
2. Australia Institute https://australiainstitute.org.au/wp-content/uploads/2024/08/P1451-Australias-great-gas-giveaway-NT.pdf
3. Norges Bank Investment Management https://www.nbim.no/en/
4. Australia’s Future Fund https://www.futurefund.gov.au/
5. 350 Australia https://350.org.au/