The mining propaganda machine

Advertisement
yellowibis-com-geology-symbols-women-s-heavyweight-t-hammer-and-pick-black-glow-in-the-dark_design1

The mining propaganda machine is a well oiled and efficient instrument. It works like this:

  • lavishly fund the industry lobby (the Minerals Council of Australia)
  • commission a paid report into any given subject from an “expert economic consultancy”
  • release the result “exclusively” to a major paper to dupe them into thinking they’ve got a scoop
  • running with the hand fed agenda the paper may even commission extra expert opinion confirming the findings
  • watch the headlines roll

Today’s example is a new report commissioned by the Minerals Council from economic consultancy “Macroeconomics” to peer into the federal budget and the result is another bulls eye for the miners at the AFR:

Advertisement
Capture

The Gillard government is set to leave a “large structural hole’’ in the federal budget that will need to be fixed with a massive one-off cut to spending or an unprecedented period of fiscal restraint, according to a report commissioned by the Minerals Council of Australia.

The findings, by modelling firm Macroeconomics, predict the Commonwealth’s headline cash deficit will widen from $11.6 billion this financial year to $14.3 billion in 2016-17 unless at least $15 billion is removed from the government’s current spending “base”.

The report warns of the potential for decades of so-called structural deficits – a concept that strips out the positive effect of temporary factors such as booming commodity prices and periods of above-average economic growth.

It says unless governments rein in their outlays, the structural budget shortfall will be at 0.7 per cent of gross domestic product by 2024-25, about $10 billion in today’s dollars, before ballooning to 5.6 per cent, or $78 billion, by mid-century.

Macroeconomics director Stephen Anthony, a former Treasury official, said Canberra should impose a hard limit on the size of government by keeping the ratio of federal taxes to GDP below 22.1 per cent – the average of the past 50 years – and below the existing goal of 23.7 per cent.

“Ten years on from the start of the China boom, it is clear that Australia’s fiscal strategy is in need of an overhaul,” Mr Anthony said.

“Even more concerning has been the degree to which the nation’s fiscal sustainability has been compromised by a failure to maintain appropriate fiscal discipline in the ‘boom years’.”

Wow. This is Orwellian business practice at its peak. The very industry that used the media to destroy the mining taxes that were designed in part to prevent this kind of budget imbalance then uses the media to destroy the government for the imbalance.

It’s masterful, really: a reflection of a sector that is a world class rent seeker and a business media whose desperate attempts to survive have led it into its own cloaca.

Advertisement

As it happens, I more or less agree with the underpinning analysis in the report. We do have a budget that is on a path to never see a surplus again:

Capture

But that is royally besides the point. This report was paid for by the Minerals Council. Where is the declaration of how much Macroeconomics was paid? Or perhaps the brief that was provided? The payment doesn’t necessarily equate to bias but Macroeconomics is a well-publicised budget skeptic so no other result was ever going to be forthcoming.

Advertisement

Most importantly, the report demands big budget cuts while providing only the only the briefest of contexts for the outcome. There is no discussion of the forthcoming mining investment cliff, the broad effects of falling terms of trade on national income or canvassing of the other factors that generate Australian economic growth. Without this context, its crucial conclusion is woefully under-argued:

Fiscal consolidation can also be expansionary in an open economy if it contracts public consumption expenditure.20 This may seem counterintuitive, but if foreign investors respond to tighter budgets by lowering the required return on their lending, then domestic interest rates will tend to be lower, as will the exchange rate. This will help to promote private investment and exports.

Sure. But will fiscal consolidation be expansionary when we’re losing 2% of GDP per year as the mining investment boom unwinds? I think not.

Advertisement

Again, this is not to say that the report does not make some sense. But it is limited or partial analysis. The great question of the period ahead for the Australian economy is how will the sacrifices of the post-boom adjustment be shared? The report suggests cuts to middle class and corporate welfare, some of which I agree with. But funnily enough, there is no mention of the role mining has to play in that common sacrifice, such as plugging the holes in the MRRT.

That’s the real point of this exersise. To damage to incumbent government, remove the MRRT altogether, and exempt mining from all fallout in the adjustment ahead. And to do it in way that appears to give a shit about the country.

Hang your head, AFR.

Advertisement

Roadmap for Fiscal Sustainability WEB

About the author
David Llewellyn-Smith is Chief Strategist at the MB Fund and MB Super. David is the founding publisher and editor of MacroBusiness and was the founding publisher and global economy editor of The Diplomat, the Asia Pacific’s leading geo-politics and economics portal. He is also a former gold trader and economic commentator at The Sydney Morning Herald, The Age, the ABC and Business Spectator. He is the co-author of The Great Crash of 2008 with Ross Garnaut and was the editor of the second Garnaut Climate Change Review.