Norway's success story and its approach to resource taxation is an intriguing model for countries like Australia to consider. Norway, a small Nordic nation with a population of around 5 million, has achieved remarkable prosperity and happiness, largely due to its innovative use of resource wealth.
The country's $US2.144 trillion sovereign wealth fund, the largest in the world, has generated significant profits, with a $US102.56 billion gain in the third quarter alone. This fund, which invests in real estate, renewable energy, and global equities, has stakes in over 8,300 companies worldwide, including Australian entities like the Commonwealth Bank and Bega Cheese.
But here's where it gets controversial: Norway's wealth is deeply intertwined with its oil industry. Almost a quarter of its national budget is funded through this sovereign wealth fund, which started with oil proceeds. Norway imposes a 56% "special tax" on oil and gas companies, alongside a 22% corporate tax rate, and reinvests these proceeds into the fund.
Norway's Prime Minister, Jonas Gahr Støre, describes the fund as a way to transfer the nation's seabed values into a financial mechanism for future generations. And it's working; Norway now owns almost 1.5% of all shares in listed companies worldwide.
Australia, with its own sovereign wealth fund, the Future Fund, ranks behind Norway and other fossil fuel-rich nations. Australia's Petroleum Resource Rent Tax (PRRT) applies only to profits from petroleum products and has been described as "broken" by critics.
During the global energy crisis, Norway's resource tax revenue tripled, but Australia's returns have been less impressive. Economists argue that it's not too late for Australia to improve its resource taxation and secure better returns.
Could Australia learn from Norway's targeted resource taxes to boost investment in critical minerals? In October, the US and Australia agreed on an $US8.5 billion critical minerals deal, and governments have invested billions in critical mineral developments since 2019.
However, there are concerns about the balance of risk and reward in these interventions. While some argue for a more hands-off approach, others suggest that Australia could add value by refining critical minerals, similar to its natural gas refining process.
As Australia continues to navigate its resource wealth, the question remains: Can it learn from Norway's success and strike a balance between resource taxation, investment, and value addition?
