Why we have a booming budget and a sluggish economy

Australia List of Company, Business in Australia

Why we have a booming budget and a sluggish economy

Why we have a booming budget and a sluggish economy
"It will generate, over the course of its life, an enormous amount in taxes and in royalties, revenues for state and federal governments.

"So plainly there is a huge economic benefit from a big project of this kind, assuming it's built and it proceeds."

So said former Prime Minister Malcolm Turnbull two years ago when pushing for the construction of the giant Adani coal mine in central Queensland.

When Treasurer Josh Frydenberg hands down his maiden budget next week, it will be an election document bloated by the proceeds of mining revenues, delivering some handy ammunition for a pitch at re-election.

Another sudden rebound in the prices for our major exports, iron ore and coal, has helped bring the federal budget back to surplus far quicker than anyone expected.

But that sudden influx of cash and the spin that goes with it, sits strangely at odds with all the recent talk of a "per capita recession", the lowest wages growth on record, collapsing housing prices, pressure on the Reserve Bank to cut interest rates and a general sense of funk over the direction of our economy.

It's because we again are feeling the effects of a two-speed economy; except this time there is a stark difference between our internal economy and our external earnings.

Mining and the jobs myth

Resource exports are vitally important to our financial well-being. Mining accounts for about eight per cent of our Gross Domestic Product and around 60 per cent of our export income.

But few Australians benefit directly from a booming resources industry.

Mining these days is highly sophisticated and capital, rather than labour intensive.

Much of the grunt is done by machines, run by computers that are operated, in many cases, thousands of kilometres away from the action.

According to the job figures from the Australian Bureau of Statistics released last week, around 257,000 Australians work in the mines.

It sounds like a lot of people. But that's out of a total of 12.6 million — a little over two per cent of the workforce — giving you an idea of just how mechanised the industry is.

Greater automation continues to whittle back the numbers of those employed. In fact, mining jobs peaked back in 2012 when 278,000 were employed in the sector.

To put that into perspective, as a nation we have created around 200,000 new jobs — the entire mining workforce — each year for the past five years.

As we saw from the boom, both before and after the financial crisis, most new jobs created from the huge amount of investment poured into the industry was in construction.

Once the new mines were up and running, the builders were sent home, many of them back to the eastern states to feed the next big boom in housing.

Just to compare, we have more than 1.16 million construction workers.

After the boom

Most of us benefit from resources booms via a stronger currency. They allows us to buy imported goods and services more cheaply.

But there's a trade-off there too. The stronger dollar, if it persists long enough, can put local manufacturers and service providers out of business because they simply can no longer compete.

Many never return, even after the dollar subsides. Then there's the inevitable hangover.

Just as a sharp lift in investment spending in a resource project can boost income and the economy, the sudden withdrawal can have a devastating effect on a regional economy, particularly if governments have assumed the good times would last forever.

Take the Northern Territory, for example. Its fortunes were buoyed by the construction of several major gas projects in recent years.

But with the Inpex project now completed, those who flew in to build it are now leaving en-masse, leaving its finances in crisis and creating headaches for those who invested during the good times.

Western Australia has experienced similar withdrawal symptoms. The proceeds of the decade long boom weren't banked and the aftermath from the prolonged party has left the state's finances in serious strife with huge debts.

Perth property has been on the slide for four years with losses now approaching 20 per cent.

Then there's the impact on federal finances. Commodity prices fluctuate dramatically at times, making it difficult for federal governments to plan, particularly on budgetary issues.

If there's one thing Prime Minister Scott Morrison did correctly during his time as Treasurer, it was to put conservative values on the price of iron ore and coal.

In last year's budget, he banked on iron averaging this year at $US55 a tonne. Lately, it's been pushing $US90.

For every $US10 a tonne lift, an extra $5.5 billion flows into Treasury which helps explain the pre-election bonanza.

Was this article helpful? Yes -0 No -016 Posted by: 👨 Thomas M. Stanley
Wait 20 seconds...!!!