Successive Australian governments have wasted the spoils of the mining boom by cutting tax rates and spending too much, and consideration of a more comprehensive mining tax is needed, according to a new report on the effects of the mining boom.

The Grattan Institute has also warned against propping up the manufacturing industry with government funds, saying the money would be better spent on retraining workers.

Titled The Mining Boom: Impacts and Prospects, the institute’s report advises that a post-boom recession can be avoided if the current government cuts spending, raises taxes and focuses on regaining a budget surplus.

“Australia’s economic stability through the boom provides grounds for optimism that it will avoid a deep recession,” the report says, but “even if a recession can be avoided, a fall in the terms of trade would reduce national income and government tax receipts.

“The Australian government has not saved enough of the windfall from the boom. National saving has been strong, and household saving has been high in recent years. But public sector saving has been too low. Governments have made spending and tax decisions that have produced almost no net savings from a decade of elevated resources prices.”

While governments are criticised for not saving enough money from the mining boom, the report emphasises it is not a “national crisis of under-saving”.

Australia’s relatively low inflation rates throughout the boom and its stable economy are saving graces, says the report, which will play a role in Australia’s avoiding a recession if government policies fall into line.

The effect of the mining boom on other industries is also studied, and declines in tourism and manufacturing are attributed, in part, to the high Australian dollar which has been mainly driven by the boom.

However, the report says manufacturing has been in steady decline since the 1970s and, while the mining boom accelerated the decline, it did not cause it.

The institute advises against government subsidies or bailouts for the manufacturing industry, saying an average of $63,000 has been spent on each manufacturing employee over the past decade.

“The cost of government support via subsidies or trade barriers is high,” the report says.

“Funds have opportunity costs: they could be used to retrain workers rather than to prolong careers in unviable sectors.”

The report recommends public saving be increased straight away and a “careful” review of the case for a more comprehensive mining tax be undertaken, as well as budget rules changed so there is no “implied licence” to spend resources boom windfalls. “It can also be fairer to future generations to save part of large terms of trade windfalls, especially if they derive from exhaustible resources,” the report says.