2012-13 PRE-BUDGET SUBMISSION

MINERALS INDUSTRY PERFORMANCE

A sustained surge in mining investment and related activity is bolstering the Australian economy in the face of global economic uncertainty. Recovery in minerals production and exports following severe floods early in 2011 has underpinned the nation’s export performance with minerals exports (excluding oil and gas) reaching $154 billion in 2010-11 (52 per cent of Australia’s total exports).

Key commodity prices are down from levels reached in the September quarter 2011 and further easing is in prospect given the weaker global economic outlook. This underscores the challenge for Australia to transition successfully from a period of price-led mining growth to an era of long-term volume growth. Realisation of the massive pipeline of mining projects in Australia on time and on budget is critical to this objective.

The Bureau of Resources and Energy Economics (BREE) estimated the total value of resource projects (either committed or on the drawing boards) at $455 billion at the end of October 2011. Of minerals industry projects valued at more than $226 billion, the potential value of iron ore mining and infrastructure projects was estimated at almost $100 billion while the prospective pipeline of coal mining and related infrastructure projects has been put at $80 billion.

Employment in the minerals industry reached 226, 200 in November 2011, following growth of 21 per cent in each of the last two years. Wages, workplace training and skills development expenditure in the industry are all higher than the national average. The minerals industry is a key driver of economic activity in regional and remote Australia, accounting for 30 per cent of employment in some regions. With the minerals industry already Australia’s largest source of private sector employment for Indigenous Australians, new research has highlighted the positive impact the mining boom is having on Indigenous labour market outcomes.

A key industry objective is improving land use planning and management. The industry’s environmental policy focus in 2011 included developing a strategic land use assessment and planning framework to better support the coexistence of mining, agriculture and conservation and securing more workable arrangements for biodiversity offsetting under the Environmental Protection and Biodiversity Conservation (EPBC) Act.

ECONOMIC AND COMMODITY OUTLOOK

The global economy has slowed and remains heavily reliant on emerging economy growth. Europe’s unresolved sovereign debt and banking crises, continued structural weaknesses in other advanced economies and moderating growth in China and India point to significant downside risks, though these appear to have declined in early 2012. Commodity prices are expected to ease further in the near term but to remain at historically elevated levels. In a “bipolar” global economy, emerging Asia’s ascendancy as part of a larger structural shift in the global economy should underpin longer term growth in commodity demand.

The key challenge for Australia is to convert a period of price-led growth in mining activity into an era of long-term volume growth. While well-placed to take advantage of the enormous opportunities on offer, Australia faces intense competition with no monopoly on supply based on natural endowment.

Growth in the Australian economy remains solid with mining investment expected to deliver two-thirds of economic growth in 2012. At the same time, rising cost pressures and lower commodity prices underscore the need for further market-oriented economic reform to improve Australia’s productivity and competitiveness.

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