How to Cure a Nation of Institution Fatigue
Or how to stop the system being rigged
We are witnessing a worldwide trend of right-wing populism fuelled by distrust of “elites” – that is, the political classes and their often hidden wealthy backers. Somewhat baffling is that this is happening despite the obvious flaws, criminal behavior, and general and massive failures of the second Trump experiment. But the reality is, it is happening.
Australia is not exempt from it, but we are uniquely placed to take up the challenges that ignited this trend. The distrust of governments and of institutions is not unwarranted – but in the main, it is only the far right offering clear alternatives – even if it can be debated about how reasonable, workable, or equitable those changes would be. That’s the devil in the detail that is often well-hidden in the rhetoric and messaging.
What Australia can do:
If Australia charged royalties on our resources at the same rate as Norway taxes those exploiting it’s resources, we would be adding an estimated 100b to our coffers if applied across the board.
We are well-placed to do this, at least in theory, derived from our full name – the COMMONWEALTH of Australia. That is not just some random official descriptor. It means precisely what it suggests it means – that all Australian citizens equally share the natural resources of the country. The other half of the equation is that we have natural resources in mind-boggling abundance.
Minerals, oil and gas are all subject to royalty payments to state and federal governments averaging 30b to 35b annually, mostly going to the states, and with the exact figure being tied to commodity prices. When tax is added, the total annual bill for the multinationals grows to around 75 to 80b a year.
The Norway Model
Norway applies a flat 78% marginal tax rate on oil and gas profits (comprising a 22% corporate tax and a 56% “special petroleum tax”). Crucially, the Norwegian government also retains a 50% direct ownership stake in every production licence, capturing pure dividends. This has resulted in a country of under 6 million people having the largest sovereign wealth fund in the world – in Australian dollars, 3.2 trillion. This compares to our equivalent – the Future Fund – which has a paltry 230b by comparison.
Why and How Does Norway Do This?
While Australia calls itself a “Commonwealth” country, it followed our main allies, the US and Britain into neoliberism market-driven approaches in the 1980s. Norway on the other hand, uses the concept of Fellesskap (common community/togetherness). This concept is codefied in its constitution Norway’s ability to levy an effective 78% tax on oil and gas profits is not a modern socialist invention. It is the result of a century-long, fierce battle for resource nationalism that dates back long before oil was ever discovered. The courts found in the governments favor, establishing that the state has ultimate sovereignty over natural resources, and the rights of the collective public (Fellesskap) supersede the profit motives of private capital. In 1971, the parliament unanimously passed the “Ten Oil Commandments” to guide resource extraction. Commandment #1 legally declared: “National supervision and control must be ensured for all activity on the Norwegian Continental Shelf.” They stated that resources in the ground are common property, and private companies are merely contractors hired to dig them up. This was later added to the Norwegian Constitution, which states inter alia that natural resources shall be managed on the basis of comprehensive long-term considerations which will safeguard this right for future generations as well.
Who is the “Commonwealth” in more than name only?
While Australia holds the word “Commonwealth” in its official title, as shown, its economic management has historically drifted toward a neoliberal, market-driven approach. Norway, without ever using the English word, built the world’s truest operational example of it.
While youtubers use Norway as an example, and politicians spout mining lobby talking points to say we cannot emulate Norway because (a) we cannot charge those amounts because of the distance between Australia and the rest of the world, and because of the extra cost burdens of our rugged terain, (b) because mining companies would stop coming here if we did impose such high royalties and (c) they help communities by supplying jobs etc. An additional ploy of politicians is to exploit confusion about the differences between taxes and royalties as a means of diverting attention from the real issues.
The real roadblocks for Australia in implementing the Norway Plan
· Despite having “Commonwealth” in our name, there is nothing in our constitution about resources. The constitution was at the time, all about unifying the separate British colonies (now states) into a federated nation and determining what powers that federation would have. Any powers not specified in the document remained with the individual states. This included natural resources, with the exception of those offshore.
· Royalties paid to the Federal Government for offshore resources are collected under the doctrine of British Common Law insofar as they inform the legislation involved. The royalties paid to states for onshore resources are paid under individual state laws.
· The Federal Government is unable to nationalize mining industries because the resources to be mined belong to the states. They could, however, nationalize companies, but under the preferred solution, there is probably no need to.
· Major parties are beholden to mining companies due to the substantial amount of donations received from them. It is also a fact that numerous politicians transition to work in those industries when their political career ends.
Two solutions
1. A referendum to change the constitution to something similar to what Norway has. It is true that referendums rarely pass in Australia – but this is almost a no-brainer to pass. The anger over the issue is palpable across the political spectrum.
2. This negates the need for a referendum. Fixing the Offshore Loophole: Drastically reforming the Petroleum resource rent tax (PRRT) using existing federal tax powers to capture the actual value of offshore gas, combined with cooperative federalism in which an agreement with state governments would be made to pool onshore royalties into a unified, national Sovereign Wealth Fund in exchange for funding a nationwide Job Guarantee.
The second option is preferred because though I believe a referendum would pass, the stumbling block is Section 51(xxxi) which states that if the Federal Government acquires any property from a person or corporation, it must do so on “just terms” (meaning full, fair market-value financial compensation). A Norway type section in our constitution would therefore mean either Section 51(xxxi) would have to go, or be amended, or the federal government would be sued by the mining companies. In that event, the government would have to make the case that a Norway type deal with the corporations was fair and just – a not impossible task, but one with high stakes risks. There are other, compelling reasons to keep section 51 (xxxi), as anyone who has watched The Castle will know.
The End Game
To build a fund eventually capable of providing a livable universal dividend, along with jobs guarantee to ensure that anyone wantimg to work, can work regardless of the open job market. Such guaranteed jobs would be community-based in needed sectors, providing value to the community, further offsetting the cost.
The Norway Sovereign Wealth Fund has a 3% draw down each year. That money is used to fund the health system and other public services. The amount is usually equal to about 20% of the total Norwegian budget.
Since our Future Fund is a fraction of their Soverign Fund, and we have nearly 5 times to the population, we could not immediately draw down the same percentage to fund a Universal Dividend to each citizen, no strings attached. We need to build the fund as quickly as possible by not drawing down interest on it for between 5 and 7 years, and adding the full amount gained from option two above, every year. The fund would need to reach one trillion dollars to fund a $2000 annual royalty to each adult. As the fund grows, so would the amount drawn down without eating into the principle.
The start of the $2000 payments would begin the process of dismantling the welfare system. This would be done slowly by using the royalty payment to offset unemployment and age pension payments (all paid out of general tax revenue), until the amount being paid grows large enough to cease those means-tested payments altogether.
By the end of the process, a number of welfare payments will cease to exist. Supplemental payments would still be made to those with special needs, such as carers, and the disabled to both provide the assistance needed but also to offset the inability to earn extra income from employment.
The total federal expenditure for the Social Security and Welfare portfolio is projected to reach $309 billion. This accounts for an immense 37.1% of all government spending, making it the single largest category of taxpayer expenses.
Category A: Direct Payment Offsets (Immediate Budget Relief)
Once the Future Fund clears $1 trillion and begins paying out the $2,000 per year Universal Dividend (equivalent to roughly $38.46 per week per adult), this amount is automatically deducted from current welfare claims.
JobSeeker and Youth Allowance Savings: Eliminating the current “dole” checks entirely for those entering the Job Guarantee (JG) saves the federal budget roughly $15 billion per year based on current modelling. This may seem anomalous at first glance, since the cost of the JG would be about 50K pa per pserson compared to about 20K in welfare payments per person. But this is more than offset by the difference in economic output between the two systems, while also providing essential community services. These new workers also enter the tax system, whereas many on welfare do not receive enough money to enter the tax system.
The Pension Dividend Offset: Trimming $38.46 per week off the top of the regular Age Pension pool automatically claws back roughly $5.2 billion per year from the $110 billion pension budget.
Services Australia Downsizing: Running a strict compliance and surveillance machine requires a massive workforce of over 30,000 public servants. Shifting to an automated dividend would harvest an estimated $3 billion to $4 billion per year in reduced government operational overhead and redundant IT compliance architecture.
Scrapping Private Job Agencies: The federal government spends roughly $1.5 billion to $2 billion annually paying private, third-party “Jobactive” employment agencies to monitor the unemployed. Under this system, this entire industry is abolished, saving the taxpayer $1.5+ billion instantly. Abolishing Centrelink compliance measures also constitute a massive saving, as means testing and the quaint Victorian era idea of “mutual obligation”, making some payments reliant on a system of punitive and unreasonable requirements on the unemployed person as if it is their fault that there are never enough jobs for all. It is an idea that borrows from the vicarage sytem of the “deserving poor”.
The total annual savings would be 25.2b pa at the start and grow as the Universal Dividend offsets more of the current payments, finally replacing them at the time the Dividend reaches the equivalent of a livable wage – all added to the Future Fund
But the benefits and savings of this system do not stop there.
Universal Dividend: This system treats unemployment not as a personal failure or a tool to manipulate interest rates, but as a structural reality. Robust social safety nets ensure that losing a job does not lead to poverty or loss of healthcare.
Planned unemployment (which is what all Western Democracies have, but will never admit) to keep interest rates down, has not only a monetary cost to the individual. It can also have a mental health cost, and a loss of human potential. The savings in the health portfolio and indeed, in the department of justice, due to lower crime rates across all categories of crime, would be massive.
Considering the extra money from resources, and the savings from the social security, health and justice budgets, it would take approximately 54 years of saving to draw 4% of the fund interest and have enough in that draw to fund a living wage for every adult, so it is a long-term plan. The 54 years figure is based on estimates of growth, but it also approximates the period of time it took Norway to get where they are now. The sooner we get started, the sooner we get there, and the more effectively we save future generations the pain we are currently intent on inflicting on them. Regardless, the gradual increases along the way will continue to contribute positively to both society and 99% of all individuals within it (sorry Gina. But I’d be happy to paint a portrait of you as compensation).
The AI “Takeover”, should it happen, has minimal effect in this system.
In line with these changes, we would need to overhaul the system of lobbying, political donations, and improve systems in place to oversee transparency, while also strengthening the powers and the scope of the Federal and State Corruption Commissions.
Other issues:
We need to work out how to protect the system against an incoming government dismantling it purely on ideological grounds. Popularity of the system has been all that has saved Medicare from being dismantled on those very same grounds. It is hoped that popularity will save this system, as well, but a Plan B would be good to have in the breast pocket.
We need also to incorporate child payments, similar to what are paid now, but on a universal rather than a means tested basis. The amounts also need to be lifted to encourage more births.
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