Australia is suffering from the “resource curse,” also known as Dutch Disease. This is where a major boom in natural resources strengthens the currency, weakens other export sectors, fuels unsustainable growth in the public sector, and creates widespread dependency on government spending. When commodity revenues inevitably decline, governments often respond with heavy borrowing, money printing and higher taxes, resulting in further economic damage—setting off a spiral that can lead to high inflation, stagnation, or worse.
This article examines historical examples of the phenomenon—Habsburg Spain, the Netherlands, early Melbourne, and Venezuela—before turning to Australia’s current situation and the policy choices that will determine our future.
Habsburg Spain
In 1545, the Spanish discovered the vast silver mountain of Potosí in the Americas. Enormous quantities of silver flowed into Spain, giving the appearance of limitless wealth. Much of it was quickly spent on military campaigns (wars against France, the Ottomans, and the Dutch), royal luxuries, colonial administration, and imported goods.
Because silver served as Europe’s primary currency, the sudden flood caused severe inflation from the late 15th to the mid-17th century. Spanish goods became expensive and uncompetitive abroad, while imports grew cheaper. This led to chronic trade deficits and the rapid outflow of silver. Manufacturing (especially textiles), shipping, and agriculture contracted sharply as resources shifted toward non-tradable sectors such as services, construction, and luxury consumption.
Spain defaulted on its debts multiple times (1557, 1560, 1575, 1596, 1607, 1627, 1647, and 1652). Dependence on unpredictable silver shipments—often lost to storms or pirates—created fiscal instability. Instead of investing in productive infrastructure or new industries, the windfall fostered rent-seeking, public-sector expansion, and extravagance. The result was long-term economic decline despite the greatest resource windfall of its era.
The Netherlands
The term “Dutch Disease” was coined by The Economist to describe the Netherlands’ experience after discovering one of the world’s largest natural gas fields in 1959. Production ramped up in the 1960s, and revenues surged in the 1970s as energy prices rose. Gas became the country’s dominant export.
The influx of revenue appreciated the Dutch guilder, making manufactured and agricultural exports less competitive. Many firms closed or downsized, increasing unemployment and economic reliance on gas. Much of the money funded public infrastructure, an expanding welfare state, and public-sector growth.
Gas production later declined sharply—from 80–88 billion cubic metres (bcm) annually to just 2.8 bcm in 2022, ceasing entirely in 2023. The Netherlands avoided catastrophe by implementing budgetary tightening and conventional borrowing, keeping public debt relatively moderate. However, the episode illustrated how resource wealth can hollow out other sectors and create fiscal dependency.
Early Melbourne, Australia
Melbourne offers an early Australian case study. Founded in 1835, the settlement grew steadily on the wool trade. The 1850s gold rush transformed it: the population quadrupled to around 130,000 by 1861. Gold wealth funded major infrastructure, public buildings (State Library, University of Melbourne, Parliament House, Treasury Building), and rising wages.
Combined with population growth and British capital, this triggered a spectacular land boom in the 1880s. Property speculation drove prices to unsustainable levels; so much so the city earned the nickname “Marvellous Melbourne.” The boom collapsed in the early 1890s after the discovery of richer goldfields in Western Australia, falling wool and wheat prices, and the 1890 Baring Crisis in London, which dried up British investment.
Land and property values crashed, triggering a financial crisis. Banks, building societies, and developers failed. Unemployment soared and roughly 10% of houses were repossessed. Recovery took decades. The episode showed how a resource-driven boom can fuel destructive speculation and leave a painful bust.
Venezuela
Venezuela was once Latin America’s richest country, thanks to the world’s largest proven oil reserves (around 300 billion barrels). Oil accounted for roughly 95% of export revenues. High production (peaking near 3.5–3.7 million barrels per day) and strong prices funded generous social spending.
Under Hugo Chávez, the government dramatically expanded public expenditure, public employment, and welfare programs while expropriating and nationalising private businesses. Political appointees replaced experienced managers at the state oil company. Nicolás Maduro continued and intensified these policies even after oil prices collapsed by about 70%. Revenues plummeted, deficits exploded, and the government printed money aggressively.
The result was catastrophic hyperinflation—reaching millions of percent by 2018–19—the collapse of the Venezuelan Bolivar (its money), a sharp fall in oil production, and one of the worst peacetime economic collapses in modern history. An estimated 7–8 million Venezuelans fled the country. A once-prosperous nation became one of the region’s poorest, illustrating the dangers of extreme resource dependence combined with poor governance and institutional erosion.
Australia Today
Over the past two decades, Australia has enjoyed an extraordinary mining boom in iron ore, coal, and natural gas. Yet we have largely squandered the windfall. Manufacturing has withered, the public sector has grown significantly in size and cost, and a culture of state dependency has taken root. Real living standards have declined since around 2012.
Critically, unlike Norway and other resource-rich nations, Australia has failed to establish a meaningful sovereign wealth or stabilisation fund to cushion future shocks. When mining revenues eventually fall—as they inevitably will—the costs of a bloated public sector and high welfare dependency will remain. The resulting large fiscal deficits will likely be met with higher taxes, more borrowing and money creation, feeding inflation. The higher taxes will then slow the economy further, widening deficits and deepening the spiral.
Political Intent
None of Australia’s major political parties currently offer a credible solution, nor do they appear to be even concerned about the peril it poses. Also, no major party is seriously proposing the creation of a sovereign wealth fund or meaningful structural reforms to reduce public-sector bloat and restore private-sector dynamism.
Only Classic Liberals advocate the policies needed for long-term prosperity: significant reductions in the size and cost of government, the restoration of strong private-sector growth, and the dedication of resulting fiscal surpluses to a sovereign wealth fund. That fund would invest in Australian small- and medium-sized enterprises, helping build genuine, diversified economic strength rather than continued reliance on volatile commodity revenues.
Australia still has time to learn from history. The resource curse is not inevitable—but avoiding it requires deliberate, courageous policy choices rather than continued short-termism. The only party with both the solution and the intent to fix the problem is Classic Liberals Australia. Support it if you care about your future.
Written by: Mark Morris (July 2026)