Norway's success story and its approach to resource taxation is an intriguing model for other nations to consider. Imagine a country where people are not just happy, but also incredibly wealthy, and a significant part of this prosperity is funded by a massive sovereign wealth fund. This fund, valued at a staggering $US2.144 trillion, has seen incredible growth, with a recent quarterly profit of $US102.56 billion. But here's where it gets controversial: Norway's wealth isn't just about oil; it's about how they've diversified and reinvested their resources.
The fund has stakes in various sectors, from real estate to renewable energy and global equities. With investments in over 8,300 companies worldwide, including some of Australia's biggest names like the Commonwealth Bank and Bega Cheese, Norway's wealth fund has a significant presence Down Under, with investments worth around $33.6 billion.
And it all started with oil. Almost a quarter of Norway's national budget is funded by this wealth fund, which began with the country's oil discoveries in the North Sea. Norway's approach to resource taxation is unique. They've imposed a 56% 'special tax' on oil and gas companies, alongside a 22% corporate tax rate. The proceeds from these taxes have been reinvested, growing the fund to become the largest in the world.
Norway's Prime Minister, Jonas Gahr Støre, describes the fund as a way to secure a financial future for generations to come, by transferring the value of their natural resources into a financial mechanism.
Now, let's compare Norway and Australia. Norway discovered a massive offshore oilfield in the North Sea in 1969, and initially, foreign companies developed these fields. But Norway took a different path, claiming a 50% ownership stake in all production licenses. By 1996, they had established their sovereign wealth fund, and today, they own almost 1.5% of all shares in listed companies worldwide.
The revenue from oil and gas now makes up less than half of the fund's value, with the majority coming from investments in equities, real estate, and renewable energy. In contrast, Australia's Future Fund, ranks 16th, behind other fossil fuel-rich nations like Norway, Qatar, and Saudi Arabia.
So, how does Australia tax its resources? The Petroleum Resource Rent Tax (PRRT) was introduced in the late 1980s, replacing the federal royalties scheme. It's a federal tax levied on petroleum, oil, and gas projects in Australian waters, and it only applies to profits from the sale of specific petroleum products. Other minerals like iron ore and coal are not covered.
Profits are taxed at 40%, but companies can deduct expenses and carry forward losses. However, this system has been criticized as 'broken', and recent changes by the Commonwealth have not yielded the expected results. In fact, the rework of the tax is expected to raise $4 billion less than initially forecast.
During the global energy crisis, countries like Norway saw significant increases in tax revenue from their resources. In 2022, Norway collected about $US89.5 billion, almost three times the record set the previous year.
Economists like Richard Denniss from the Australia Institute argue that it's not too late for Australia to improve its returns on national resources. In 2023-24, Australians paid more than four times on HECS repayments compared to what gas companies paid on PRRT.
Dr. Denniss says, "There's nothing stopping Australia from imposing taxes on our oil and gas like the Saudis, Norwegians, and Qataris do."
Could more targeted resource taxes help investment in critical minerals? In October, the US and Australia agreed on an $US8.5 billion critical minerals deal. Since 2019, governments have spent about $6.6 billion on critical mineral developments, and there have been government bailouts for metal facilities.
Lian Sinclair, a specialist in critical minerals from the University of Sydney, says some interventions are necessary due to the uncertain and opaque nature of these global markets. She argues for public intervention to de-risk the market, but warns that the risk is not being shared equally.
"The state is accepting all the downside risk but very little of the upside potential," she says.
Richard Holden, an economist from the University of New South Wales, believes the rules of global trade and economics have changed as countries seek to exert power. He points to China's dominance in rare earth and critical minerals markets and the US's use of tariffs as a strategic political tool.
Professor Holden criticizes the Commonwealth's interventions, saying they haven't struck a balance. The federal government emphasizes "value add" for Australian resources, a key part of the Future Made in Australia policy.
Prime Minister Anthony Albanese says, "We can make things here. We can add value here. We can turn the resources the world needs into the products the world wants. We can build an economy where manufacturing is as strong as mining."
But Professor Holden is skeptical of this strategy, arguing that Australia needs to be thoughtful about its competitive advantages in manufacturing. He highlights the energy intensity and environmental costs of refining rare earths.
Dr. Sinclair proposes a different approach to value add, suggesting Australia could refine critical minerals, similar to the refining of natural gas into LNG. She gives the example of refineries in Western Australia attempting to mine spodumene and refine it into lithium hydroxide, which can be directly used in lithium-ion battery manufacturing, increasing Australia's export value.
As government investment in the industry grows, Dr. Sinclair cautions against not maximizing returns. Some ventures may be unsuccessful, while others could generate huge profits. But what does the state and the public receive for these risks and rewards?
So, what do you think? Should Australia consider a more Norwegian approach to resource taxation? Could it lead to a brighter future for the nation's wealth and well-being? Let's discuss in the comments!
