Australia after the mining boom: what next?
To answer this question, the first thing is to get the descriptions right: The ‘mining boom’ is still going and will be for a long time yet. It was mainly a boom in commodity prices and profits by value, not huge growth in quantities. That scene now changes as the supply potential of coal and iron ore especially have been expanded. What slows down in the ratio of mining investment (i.e. capital expenditure) as a percentage of GDP and the production boom now follows. China can keep growing at near 10% a year and probably will; so the question is miscued or will come into more relevance later. First of all people complain about the two-speed economy; then they criticize the potential lack of mining activity. The expectation by implication that we need government to fill the gap by taking on things themselves or subsidizing them is a dangerous one. Before the Global Financial Crisis (GFC) Australia was growing at 4% a year without the same mining boom or explicit subsidization, and it will almost certainly resume that growth path again. If it does so recover, then the current bargain-basement interest rates slashed by the RBA in late 2012 and into 2013 will look very low in 2015.
Lying behind the business investment scene is the stability and coherence of government itself. After a good start in handling the GFC, the (first) Rudd Government lost its way (from late 2009), then lost its leader (apparently a political liability), only to restore him three years later (apparently a political plus). In between, erratic decision-making processes in the context of a minority government position sapped discretionary business and consumer confidence. Will a change of Government clear the air and boost this confidence factor? It may, but the Abbott team is heading to a replay of the Swan-Gillard disease of promising budget surpluses and not being unable to deliver them, especially as it has moved abruptly to ruling out any shift in the tax mix towards GST. That’s what’s next! Watch this space – starting from mid-May, 2014.
A footnote on the asylum-seekers issue.
This is really contentious, but there is a framework we have in economics that can help structure a poorly-bounded debate. The policy goals need to be stated up front. They range from humanitarian to callous-disregard extremes. Combatants in this debate need to make the mix of motives manifest. If a substantial goal of policy is to limit uninvited arrivals, in their interest as well as being fair to those who use the regular channels, then we need fuller examination of the information issues. If the seekers are misled and/or confused by agents or government policy in Australia, then efforts to form and send clear messages can be optimal. Strangely, the Howard Government seemed to achieve this result in 2006/7. Students recognizing this as the need for goals and information to be made explicit, in that order, can make their own elaborations and form their own (logical) policy views in relation to this difficult subject.
This post was written by Neville Norman in relation to the upcoming ESSA Q&A.
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