Mining giant gets $600m taxpayer funded bailout | 7.30

Key Concepts

• Government Bailouts: Financial assistance provided by the government to struggling industries or companies.
• Strategic Importance: Designation for assets or industries deemed crucial for national security, economic stability, or critical supply chains.
• Sovereign Capability: A nation's ability to produce essential goods or services domestically, reducing reliance on foreign sources.
• Comparative Advantage: The economic principle where a country produces goods or services at a lower opportunity cost than others.
• Mothballing: The process of shutting down a facility or equipment but maintaining it in a state where it can be reactivated in the future.
• Future Made in Australia: A federal government economic policy aimed at boosting domestic manufacturing and industrial capability.
• Copper Smelter/Refinery: Industrial facilities for extracting and purifying copper from its ore.

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The Mount Isa Copper Smelter Bailout

The Australian federal and Queensland state governments have committed a significant bailout package to Glencore's troubled Mount Isa copper smelter, a facility now deemed an "asset of national strategic importance." Glencore, a Swiss-based global resources giant whose largest shareholder is Australia's eighth richest person, had previously closed its underground Mount Isa copper mine in July and warned that its smelter and Townsville refinery would incur losses of $2.2 billion over seven years. The announced support package amounts to $600 million, aimed at preserving approximately 600 jobs. Industry Minister Ed Husic has been actively working with Queensland and Glencore for ten weeks to prevent the mothballing of these copper facilities. The government frames this as an "investment in the future industrial capability of the Northwest Province in Queensland" and crucial for Australia's position as a key global copper supplier, especially given copper's role in the transition to clean energy.

Broader Context of Government Industry Support

The Mount Isa bailout is part of a growing trend of government intervention to support heavy industry in Australia. Manufacturing and resource businesses are currently facing significant challenges, including high energy costs, rising wages, and intense competition from China, which is accused of overproduction. For instance, Australia's Port Kembla steelworks produces 3 million tons of steel annually, while China exports 10 million tons of steel monthly.

Prior to the Mount Isa announcement, other major government bailouts this year included:

• The Wyalla Steel Works.
• Nyrstar Metal Smelters in Port Pirie and Hobart.
• Rio Tinto's Tomago aluminium smelter in the New South Wales Hunter region is also in talks for its own rescue package.

The Albanese Labor government asserts its commitment to manufacturing, stating it has the "biggest pro-manufacturing package in Australian history" and is working through these issues in a "disciplined way."

Arguments for Government Intervention

The government's increasing willingness to prop up industries with taxpayer funds, particularly since the pandemic, is justified by several key arguments:

• Guaranteeing Strategic and Critical Minerals: Ensuring domestic supply of essential resources like copper.
• Avoiding Over-reliance on China: Helping "like-minded countries" reduce dependence on China, which is perceived as "misbehaving in all kinds of ways, acting strategically, cornering markets."
• Clean Energy Transition: Copper is a vital component for clean energy technologies, reinforcing Australia's role in global decarbonization efforts.
• "Future Made in Australia" Policy: The bailouts align with the government's economic policy aimed at strengthening domestic manufacturing and sovereign capability.

Criticisms and Concerns

Despite the government's rationale, the bailouts have drawn significant criticism:

• Economic Viability: Economics Professor Richard Holden argues that propping up industries that are not viable in the long run and lack a comparative advantage is a "terrible idea" and a "short-term kind of band-aid solution." He likens it to the costly and ultimately unsuccessful support for the Australian car industry, suggesting it merely "puts off the inevitable at very significant taxpayer cost."
• Lack of Taxpayer Benefit: The Mount Isa support package is described as "essentially a handout with almost no strings attached," notably lacking any provision for taxpayers to benefit if the smelter returns to profitability. This raises concerns about multinational, highly profitable companies "taking governments for a ride."
• Underlying Policy Issues: While the opposition supports the Mount Isa bailout, it simultaneously blames the government's workplace, climate, and energy policies for making "Australia expensive and uncompetitive," leading to the loss of important industries.
• Risk of Misallocation: Without clear criteria to distinguish valid cases for support from politically motivated ones, there's a risk of taxpayer money not being "well spent" and opening the door to indiscriminate bailouts.

Political Landscape and Community Impact

The government's willingness to take risks with taxpayer money is partly facilitated by the opposition's support for the Mount Isa bailout, despite their criticisms of broader government policies. For the Mount Isa community, where copper mining is a primary source of jobs and income, the rescue cash is a vital lifeline. However, doubts persist about whether the smelter will require further support in the future, questioning the long-term efficacy and financial prudence of this rising wave of industry policy. The debate highlights the tension between maintaining sovereign capability and industrial capacity versus ensuring economic efficiency and responsible use of public funds.

Conclusion

The Mount Isa copper smelter bailout exemplifies Australia's current approach to supporting heavy industry, driven by concerns over strategic importance, sovereign capability, and the clean energy transition, particularly in the context of global competition and geopolitical shifts. While providing a crucial lifeline for communities and aligning with the "Future Made in Australia" policy, these interventions face significant economic scrutiny. Critics argue that such bailouts risk repeating past mistakes by propping up non-viable industries at considerable taxpayer expense, especially when they lack provisions for public benefit if profitability returns. The ongoing challenge for the government is to navigate these complex conditions to ensure that industry support leads to a genuinely viable manufacturing sector, rather than a decline akin to the UK steel industry, while also ensuring accountability and long-term economic sustainability.