The benefits of the mining boom have peaked, with the boom “no longer boosting growth or contributing to additional improved welfare for Australian citizens” according to a major new study.
Prepared by former Reserve Bank board member Bob Gregory and Peter Sheehan, a former head of the Victorian Treasury, the report calls on the government to abandon its promise of a budget surplus next year and calls on the Bank to cut interest rates several more times.
“The positive effects of the boom have ceased or become more muted, while the negative effects are becoming more pronounced,” Professor Sheehan writes on the opinion page of The Age today.
“The emphasis is shifting to large liquefied natural gas projects, often offshore, and the high Australian dollar is reducing the competitiveness of Australian suppliers.”
“An extreme case is the $12 billion Prelude LNG project, being built by Shell for drilling offshore in Western Australia. This involves the construction in Korea of a platform three times the size of the MCG, which will contain the drilling rig, the liquefaction plant and docking facilities. It will be towed to the gas location and all aspects of production and export will be undertaken at that location. The local content implications are minimal.”
During its first eight years the mining boom delivered increasing net benefits, the Victoria University study says... The rise in the exchange rate lifted household buying power 18 per cent as the price of imported goods fell. But the dollar has since stopped rising, removing the downward pressure on prices.
During the first five years mining share gains pushed up real estate prices and lifted household wealth at three times the usual rate. But share prices are now well down, house prices are falling and many of the big new mining projects are completely foreign owned.
Always present, the negative impacts of the are now dominating.
Professor Sheehan told The Age neither Treasury nor the Reserve Bank should be blamed for missing the slowdown at the time of the May budget. But circumstances had changed.
Reserve Bank monetary policy had been “mildly restrictive” to counteract the expected continued expansionary effect of the mining boom and runaway inflation. Neither had eventuated.
The budget was “severely rather than mildly restrictive”.
“In the context of a perceived powerful continuing stimulus from the resources boom and in pursuit of a balanced budget by 2012-13, the Government proposes to take $50 billion out of the economy over two years, Professor Sheehan said.
“Again neither of these concerns is currently relevant.”
Treasurer Wayne Swan this week recommitted himself to a 2012-13 budget surplus saying it would show Australia had the “capacity to meet the challenges of the future and to keep spending in good shape”.
Treasury secretary Martin Parkinson told an American Chamber of Commerce lunch in Melbourne the benefits of the mining boom were being spread more evenly across the Australia as services and fly-in fly-out workers were sourced from other states.
“In mining booms of the past, people would relocate to the mining sites creating towns and communities but then these would be hit severely when the boom ended,” he said.
“Nowadays, airlines are opening up new routes. Incomes earned in the sector can spent in areas which do not have an immediate exposure to the mining boom.”
Published in today's SMH and Age
Sheehan and Gregory
Download the executive summary: PDF, 101 KB
Download the full Australian Economic Report Part 1: PDF, 617 KB
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