The Stats Guy: Why Australia keeps dodging the ‘resource curse’
How has Australia dodged the “resource curse” to remain one of the wealthiest, most stable democracies on Earth? Simon Kuestenmacher explains.
If you judged Australia purely by what we sell to the world, you’d think we were a glorified quarry with some beaches.
Iron ore, coal, gas, gold and a few more minerals – that’s about it. Our export economy is dominated by resources and not much else.
Yet Australia remains one of the wealthiest, most stable democracies on Earth.
On Harvard University’s Atlas of Economic Complexity, which ranks nations by how diverse and sophisticated their export mix is, we consistently place in the bottom alongside countries like Namibia or Mongolia, who mirror our export profile – not along with Germany or Japan, who mirror our standard of wealth.
Economists speak of the “resource curse”.
Somehow, countries blessed with natural resources end up poorer, less democratic and more unequal than their resource-poor peers.
It’s an unsettling patter – mineral wealth tends to concentrate power, fuel corruption and make economies lazy.
When you can simply dig wealth out of the ground, why bother investing in education, technology or manufacturing?
So why hasn’t Australia suffered the same fate as so many other resource-rich nations? Why are we closer to Norway than Nigeria?
The short answer is – institutions.
We have an invisible scaffolding of laws, rules, norms, and public trust that make investments predictable, and which (more or less) redistribute the wealth that mining creates equitably.
The intellectual foundation for this argument comes directly from the great political economists Daron Acemoglu and James Robinson and their book Why Nations Fail: The Origins of Power, Prosperity and Poverty. Their core argument is simple:
- Nations succeed when they build inclusive institutions. These nations developed systems that distribute power broadly, reward innovation, and apply the rule of law to everyone.
- Nations fail when they fall into extractive institutions. In such systems, wealth and influence is funnelled into the hands of a small elite.
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Inclusive institutions encourage people to invest, invent and participate. Extractive ones encourage rent-seeking, corruption, and political capture.
Australia inherited a powerful set of inclusive institutions from Britain – an independent judiciary, a professional public service, a free press and a deep respect for the rule of law.
These might sound like boring civic wallpaper, but they’re the very reason the mining boom turned into national wealth.
Our political and bureaucratic systems are designed to ensure that resource companies pay taxes and royalties, that governments use those funds (more or less) efficiently to build roads and schools.
I am not arguing that the system is working to perfection in Australia. In fact, I am quite nervous about certain cracks in the system.
A single resource where royalties aren’t sufficiently collected, a single mining company being allowed to tax dodge puts the risk of the whole economic underpinning of our country at risk.
We mustn’t forget how recent the balancing act of extracting resources and enriching the population is.
When Australia’s first big mining boom hit in the 1850s, we were still a collection of colonies.
The discovery of gold triggered an explosion of wealth and population and – remarkably – democracy.
Instead of consolidating wealth among a small elite, the colonies expanded suffrage, introduced secret ballots (crucial for any democratic process) and established civil service systems to manage the chaos.
Mining booms in other places led to coups. In Australia it led to parliaments.
That pattern repeated through the 20th century. Each resources rush from the postwar iron ore expansion to the gas and coal booms of the 2000s pumped money into state and federal budgets.
Australia’s famously high minimum wage didn’t just fall from the sky but was forged in an economy that believed prosperity should be broadly distributed.
Of course, it wasn’t all careful planning and institutional genius on the part of our political class.
Geography gave us the minerals. History gave us access to British legal traditions. Timing gave us the luck of being a trusted supplier when China’s industrial engine roared to life.
We are called the lucky country for a reason. But luck can be wasted.
Many countries have been equally lucky and still managed to ruin themselves.
Oil-rich Venezuela was once the richest country in Latin America and now is but a cautionary tale of mismanagement and political decay.
Or Equatorial Guinea, where immense oil wealth made a handful of families billionaires while most citizens live in poverty.
The difference isn’t geology. It’s governance.
Australia’s governments (federal, state, and local) are far from perfect, but they are relatively transparent, relatively accountable, and able to collect taxes.
Our Australian Taxation Office actually enforces these rules, more often than not. Our courts prosecute wrongdoing. And our voters, grumpy though we may be, get to kick out the government when it messes up.
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That’s how a country can have the economic complexity of Botswana but the living standards of Belgium.
Like our cars or marriages, our institutions want to be maintained too.
Institutional strength isn’t a one-time gift. It requires ongoing maintenance work. And Australia is showing signs of wear.
We’re not immune to regulatory capture, where powerful industries shape the rules to their own benefit (by politicians doing their bidding rather than the bidding of the citizenry).
Our tax system is groaning under the weight of loopholes, deductions and outdated incentives. The mining industry remains one of the most politically connected sectors in the nation.
The result? Less tax revenue than expected from record profits.
During the 2022-23 commodity price spike, for example, Australia’s miners earned billions in super-profits, but the extra tax take was surprisingly modest.
Norway, by contrast, captured and invested its oil profits through its sovereign wealth fund, now worth US$1.9 trillion ($2.9 trillion).
We have no equivalent. Some would argue that we have the Future Fund, but that’s not quite right.
Norway’s fund was built to capture and reinvest the nation’s ongoing resource profits, turning oil revenue into a perpetual income stream for future generations.
Australia’s Future Fund, by contrast, was seeded just once in 2006 with the proceeds from the Telstra privatisation, not from mining royalties or gas exports.
It’s essentially a budgetary savings account, not a resource dividend machine.
While Norway channels every barrel of oil into collective wealth, we’re still digging up our minerals, selling them off and spending the proceeds straight away.
That’s not because we lack the resources, it’s because we lack the political appetite to argue about how those resources should be managed.
Tax debates are dull, complicated, and politically dangerous. But they are exactly where nations win or lose the long game.
Australia, economically speaking, doesn’t have much to offer besides resources and getting the resource equation right is absolutely crucial for Australia.
So, if the secret to avoiding the resource curse is strong institutions, what does “strengthening institutions” actually mean in 2025?
- It means funding the regulators who monitor big industries (ATO, ASIC, ACCC etc) so they can do more than issue stern press releases.
- It means simplifying the tax code so that ordinary businesses can comply without an army of accountants while closing loopholes that allow profits to vanish offshore.
- It means protecting whistleblowers, journalists, and public servants who expose corruption or incompetence.
- It means building transparency into every level of government procurement, resource licensing, and lobbying.
And yes, it means talking endlessly and tediously about tax. About royalties. About transfer pricing and super-profits and why corporate compliance matters. Because behind every dull acronym is a mechanism that determines whether the next mining boom funds hospitals or yachts.
Australia’s future prosperity depends not just on what’s in the ground, but on what’s above it – the institutions that manage, tax and redistribute our natural wealth.
Our geological luck is set in stone, but our institutional luck depends on us.
In the end, our real wealth isn’t iron ore or gas. It’s trust – trust that contracts will be honoured, that taxes will be collected, that governments will use the proceeds to serve the public good. That’s the invisible machinery that turns a quarry into a country.
And keeping that machinery running means getting serious about the least glamorous of all topics: Governance and tax enforcement.
Simon Kuestenmacher is a co-founder of The Demographics Group. His columns, media commentary and public speaking focus on current socio-demographic trends and how these impact Australia. His podcast, Demographics Decoded, explores the world through the demographic lens. Follow Simon on Twitter (X), Facebook, or LinkedIn.
