Australia likes to think of itself as the lucky country, and nowhere does that description appear more justified than beneath our feet. We possess extraordinary deposits of iron ore, coal, gas, gold, lithium and other minerals. We sit close to the rapidly developing economies of Asia. We have political stability, sophisticated financial markets and generations of mining expertise. If any country ought to be an irresistible destination for resources investment, Australia should be near the top of the international ladder.
Yet we are slipping down it. A new Institute of Public Affairs report, Losing Its Lustre: 11 Reasons Why Investment in the Australian Resources Sector Is in Decline, argues that Australia's natural advantages remain largely intact while its attractiveness as a place to invest has deteriorated. The problem is not that somebody stole our minerals. It is that governments have steadily made extracting them less attractive.
That distinction is crucial. Countries cannot choose their geology. They can choose their policies. The IPA points to international comparisons by Canada's Fraser Institute showing Australia's deterioration as an investment destination over roughly the past two decades. Meanwhile, other resource-producing nations are competing for precisely the capital Australia once seemed almost entitled to receive. As the report puts it, Australia's resource endowment remains enviable, but increasingly the opportunities created by global demand are being captured by countries that are more willing and agile.
This is what economic decline often looks like in a rich country. Nothing suddenly collapses. The mines do not disappear overnight. Ships continue leaving Port Hedland. Governments continue collecting billions in taxes and royalties. Politicians point to enormous export figures and announce that everything is going wonderfully.
But investment decisions are made at the margin. A multinational company considering a project costing several billion dollars does not ask whether Australia has iron ore or gas. Everyone knows that it does. The company asks whether putting the next billion dollars into Australia offers a sufficiently attractive return compared with putting that billion into Canada, the United States, South America, Africa or elsewhere.
That is where Australia increasingly has a problem. The IPA identifies eleven interacting pressures behind the decline, including net-zero compliance costs, expensive energy, increasingly cumbersome approvals, industrial relations settings, taxation and royalties, regulatory duplication, environmental lawfare and, ultimately, sovereign risk. The details differ, but the cumulative message to investors is remarkably consistent: projects will take longer, cost more and face greater political uncertainty than they once did.
Sovereign risk may be the most damaging of all because resources projects operate across decades. A company can spend hundreds of millions of dollars before producing anything. Once the mine, pipeline or processing facility has been constructed, it cannot simply be packed into shipping containers and moved to another country because Canberra changes its mind.
Investors therefore need confidence not merely in today's rules but in tomorrow's rules. The IPA argues that Australia is increasingly acquiring a reputation for moving the goalposts after capital has already been committed. Environmental requirements can change, safeguard obligations can tighten, governments can intervene in energy markets, approval processes can expand and royalty arrangements can be altered. Individually, governments can provide an explanation for each decision. Collectively, they create uncertainty about what rules will govern the investment ten or twenty years from now.
Capital responds rationally. It goes somewhere else. The opportunity cost is enormous. The IPA calculates that if private business investment had remained around the benchmark levels of the preceding decade, Australia would have received an additional $688 billion in cumulative investment over the subsequent period. The report estimates the corresponding average benefit at $4,944 per Australian household.
That is the part of the resources debate Australians rarely hear. Lost investment is invisible. Nobody photographs the mine that was never constructed. There is no television footage of the processing plant built overseas rather than in Western Australia. Nobody interviews the workers who never received jobs that never existed. Governments never announce the tax revenue they failed to collect from businesses that decided not to invest.
Yet these invisible losses accumulate. The irony is particularly sharp because Australia is simultaneously attempting an enormously resource-intensive energy transition. Electrification, batteries, transmission networks and renewable infrastructure require vast quantities of minerals. Western governments talk constantly about critical-mineral security and reducing dependence upon potentially hostile foreign suppliers.
Australia should be extraordinarily well positioned to benefit. Instead, we risk possessing the resources while somebody else captures the investment.
There is another contradiction. Governments frequently look upon the resources sector as an enormous stationary object from which ever more revenue can safely be extracted. Higher royalties, taxes, compliance costs and regulatory obligations are considered individually, with each increase appearing tolerable because existing mines continue operating.
But an existing mine and a proposed mine face radically different calculations. A company may continue operating an established Australian project because billions of dollars have already been sunk into it. That tells us very little about whether the same company will choose Australia when deciding where to make its next investment.
This distinction between harvesting existing investment and attracting new investment is fundamental. A government can enjoy considerable revenue from yesterday's investment while simultaneously destroying tomorrow's.
The resources beneath Australia are not themselves wealth in any useful economic sense. A tonne of iron ore sitting three kilometres underground contributes nothing to wages, hospitals, pensions or government revenue. It becomes economically valuable only when somebody accepts the enormous risk and expense involved in finding it, financing its extraction, constructing infrastructure, employing workers, processing it and delivering it to customers.
Australia once understood this remarkably well. Mining helped transform Western Australia, supported national prosperity, generated enormous export earnings and produced billions in company taxes and royalties. The resources sector remains one of the great engines supporting Australian living standards.
Yet we increasingly behave as though geology guarantees prosperity. It does not. Argentina possesses immense resources. So do numerous African states. Venezuela possesses some of the world's largest oil reserves. Natural abundance can coexist quite comfortably with economic failure when institutions and policies discourage people from developing it.
Australia is nowhere near those examples, but that is precisely why international rankings matter. Decline is relative. We do not have to become Venezuela to become less attractive than Canada or another competing resources jurisdiction. We merely have to make investment slightly slower, riskier and less profitable year after year. Eventually the ladder tells the story.
The encouraging part of the IPA report is that Australia's problem is largely self-inflicted and therefore largely reversible. The ore is still here. The gas is still here. The expertise is still here. Our proximity to Asia has not changed. What has changed is the regulatory and political environment surrounding investment.
Australia consequently faces a remarkably simple choice. We can regard our natural resources as a permanent inheritance that governments can tax, regulate and politically manipulate without limit, confident that investors have nowhere else to go. Or we can recognise that the minerals may be immovable but international capital certainly is not.
The lucky country remains extraordinarily lucky in geology. Increasingly, however, luck is having to fight government policy. And even in resources, Australia is slipping down the ladder.