Yesterday, ABC Radio National broadcast an interesting show entitled Policy Focus: The Mining Boom Economy, which featured George Megalogenis (author, political commentator and columnist at The Australian), Nicholas Gruen (CEO, Lateral Economics), and Paul Bloxham (Chief economist for HSBC in Australia and New Zealand) questioning the underlying strength of the Australian economy and whether Australia had wasted the proceeds of the mining boom (click to listen).
George Megalogenis, who was the first guest, noted that Australia’s economic performance had been miraculous, particularly in light of the fact that it had not experienced a recession in 22 years – a record amongst OECD nations. However, the economy has slowed to a crawl over the past two years, as evident by minimal jobs creation over that time.
Megalogenis also laments the fact that Australia has wasted the proceeds of the mining boom. In particular, the first five or six years of the boom was characterised by wasted government spending by the Howard Government, which handed back the fiscal windfall from the boom to the electorate as voter bribes. And now we have the current Labor Government spending money before it receives it (in reference to spending commitments made in anticipation of receipts from the mining tax, which have not materialised). Overall, there is no sense that Australia has set itself up for the post-boom economy, which is really what worries people the most.
The interview then moves on to Nick Gruen and Paul Bloxham.
Gruen argues that an independent budgetary advisory body needs to be set-up, similar to the Productivity Commission, that would advise the Parliament on fiscal policy and help avoid the types of wasted political spending that has occurred over the past decade and help prevent booms and busts from occurring.
Bloxham is particularly disappointed that Australia has not developed a better functioning mining tax with a matching sovereign wealth fund or stabilisation fund that could have been used as a counter-cyclical measure to smooth-out the economic and commodity cycle. As such, Australia is overly reliant on commodities and China.
Bloxham also notes that around half of Australia’s GDP over the past four years has come from the mining sector, but that the tax system has not been set up to capture this growth. He is also disappointed that virtually none of the Henry Tax Review recommendations have been implemented, which would have re-shaped Australia’s fiscal policy.
