Turning Australia's Mineral Wealth Into National Wealth.

Western Australia’s iron ore boom has generated record royalty income. Queensland’s coal royalties reached historic highs. The Commonwealth collected record company tax from the resources sector. By any measure, the past decade has been one of the most profitable in Australia’s resource history.

Very little of that income has been saved. This is not a failure of any one government. It is a structural gap. Australia’s federal system was designed to distribute revenue efficiently, not to convert finite resource wealth into permanent national capital.

Closing that gap is one of the most important economic decisions Australia can make this decade.

At a glance

• Australian resource revenue is split between state royalties and Commonwealth taxes, which makes a national savings approach a matter for the federation, not Canberra alone.
• There are four ways to finance a national fund: allocating existing revenue, saving windfalls, recycling asset sales and borrowing. Each carries a different cost.
• A windfall rule, which saves revenue above an independently set long-run benchmark, is the most credible option for Australia.
• Borrowing to build a fund is the weakest option, because it adds leverage rather than wealth.
• A Commonwealth and state compact on resource windfalls would let Australia convert the current boom into lasting national capability.

Who actually collects Australia’s resource revenue

The states and territories own most mineral resources and collect royalties within their borders. Rates and methods differ between jurisdictions, some based on value and some on volume. The Commonwealth collects company tax from mining businesses and administers the Petroleum Resource Rent Tax on offshore oil and gas projects. Source: Department of Industry, Science and Resources

The consequence is simple. A national fund financed from resource revenue requires agreement on who contributes, who decides and who benefits. Any proposal that ignores the states is not a strategy. It is a slogan.

There is a second complication. Through the system of horizontal fiscal equalisation, which distributes goods and services tax revenue between the states, a state’s royalty windfall has historically been partly offset by a lower share of that tax. Recent reforms have changed how this works, but the principle remains: resource revenue in a federation is never just one government’s money.

The four financing options compared

Option	How it works	Main advantage	Main cost or risk
Allocate existing revenue	Direct a fixed share of current revenue into a fund	Simple and predictable	Less money for current services, or more borrowing elsewhere
Save the windfall	Save revenue above an agreed long-run benchmark	Protects services while capturing booms	Requires a credible, independent benchmark
Recycle asset sales	Invest proceeds from selling public assets	No impact on current spending	Changes the form of wealth rather than adding to it
Borrow to invest	Raise debt and invest the proceeds	Builds a fund quickly	Adds leverage; losses fall on taxpayers

Option one: allocate existing revenue

A government can direct a fixed share of revenue it already collects into a fund. This is the simplest approach and the easiest to explain. It also means less money for schools, hospitals and infrastructure today, or more borrowing elsewhere. Every dollar saved has an alternative use, and citizens deserve to see that trade-off openly.

Option two: save the windfall

Under a windfall rule, a government sets a benchmark for normal resource revenue, based on long-run prices and production, and saves a share of whatever is collected above it.

Chile has applied a version of this approach to copper since the early 2000s. Under its structural balance rule, an independent panel of experts estimates the long-term copper price, and revenue earned above that level is not treated as permanent income. Surpluses have been saved in the Economic and Social Stabilization Fund, which Chile has drawn on during downturns. Source: United Nations University World Institute for Development Economics Research

This is the option I favour for Australia. It protects essential services, which continue to be funded from normal revenue, while capturing the exceptional years that are otherwise spent as if they will last forever. The difficulty is setting a benchmark that stays credible through a full commodity cycle, including prolonged weak prices and falling production. That is why the benchmark must be set independently, not by the government that benefits from setting it low or high.

Option three: recycle asset sales

Selling a public asset and investing the proceeds changes the form of public wealth. It does not add to it. The Future Fund was partly built this way, using the final sale of the government’s Telstra shares.

Asset recycling is worthwhile only when the fund’s expected long-term return exceeds the income and public value the asset would have generated in public hands. That comparison should be published before any sale.

Option four: borrow to invest

Borrowing to invest creates a debt and an asset at the same time.

Consider a simple illustration. If a government borrows $10 billion at 5 per cent, it pays $500 million a year in interest. If the fund earns 6 per cent, it generates $600 million, leaving $100 million before fees and administration. In a year when markets fall 10 per cent, the fund loses $1 billion, and the $500 million in interest is still due.

A fund financed this way can display a rising balance while the nation’s real financial position weakens. That is not wealth creation. It is leverage, and taxpayers carry the downside.

Why timing matters now

Australia’s resource exports face a gradual structural shift. Demand for thermal coal is expected to decline as the world decarbonises. Demand for critical minerals such as lithium, copper and rare earths is rising, but prices have proven volatile, as the recent fall in lithium prices demonstrated.

This creates a window. The revenue from today’s strong commodities can be partly converted into capital that funds tomorrow’s industries. If the window is missed, Australia risks reaching the end of a historic boom with little to show beyond higher recurrent spending.

A Commonwealth and state resource windfall compact

My recommendation is a resource windfall compact between the Commonwealth and the states, built on five elements.

1. An independent benchmark. A panel of independent experts sets the long-run price and production assumptions for major commodities, published annually.
2. A defined savings share. An agreed proportion of revenue above the benchmark is saved, with the remainder available to the collecting government.
3. State credit and recognition. Each contributing state holds a published share of the fund, so savings are not perceived as a transfer to Canberra.
4. A capability mandate. Returns are invested in long-term national capability, including advanced skills, research and commercialisation, energy infrastructure and sovereign technology.
5. Plain-language reporting. One annual report to citizens showing contributions by government, returns after fees and what the returns have funded.

This is how a resource economy becomes a capability economy. It does not require new taxes. It requires agreement and discipline.

What leaders should do next

• Treasurers at the Council on Federal Financial Relations should place a resource windfall rule on the agenda, beginning with a shared definition of exceptional revenue.
• Resource-rich states should model what a modest savings share would have produced over the past decade, and publish the results.
• Industry leaders should support a transparent framework, because predictable fiscal rules reduce the political risk of sudden royalty and tax changes.

The full series

• What Norway’s sovereign wealth fund teaches Australia
• Australia already has a sovereign wealth fund. It needs a clearer job
• Preparing Australians for the artificial intelligence transition
• Governance is what makes a sovereign wealth fund last

About the author

Dainu Devis is an Australian emerging technology CEO, technologist and business and economic strategist. As Chief Executive Officer of Sharktech Global and Divine Lab Worx, he brings a decade of international business consulting and political strategy advisory experience to building technology businesses. His strength is concurrent product and process design, bringing the product, delivery processes and route to market together from the start.