Maximising growth in a mining boom

EXECUTIVE SUMMARY

Australia has a once in a generation opportunity to lift its wealth. Yet rather than focus on how to maximise the benefits of the mining boom, debate has been mainly about the sectoral conflicts a mining boom creates.

DownloadFocusing mainly on distribution issues risks choosing policy options that reduce the potential gains for the nation as a whole. We need policy reforms that lift Australia’s overall growth rate by encouraging resources to move into the things we are best at doing, rather than subsidising uncompetitive firms.

Structural change occurs constantly in a growing economy, because as income rises resources move out of lower value added uses into higher value added uses. Dynamic economies have high jobs turnover, as rapidly growing higher wage jobs replace those that are lower paid. The challenge is to maximise the opportunities such change offers. We should position ourselves for the future, not try to preserve the past. If we do it right, not only mining benefits from rapid Asian growth, but agriculture, education, tourism and health can do so as well.

Policy should focus on facilitating resources moving into expanding sectors to meet rising Asian demand. If we do not expand our mining capacity while export demand is rising, our competitors in Brazil, South Africa, Indonesia and elsewhere will.

The non-mining sector must be able to adjust costs and innovate to survive. The Australian dollar could remain relatively high for an extended period and we need to increase the economy’s flexibility and productivity. Mining and mining services show that Australian firms can be successful internationally.

This paper is structured in seven sections.

Section 1 shows that rapid growth in Asia has lifted Australia’s commodity export prices to record levels and is now stimulating mining investment and output. This boom will be long lasting, driven by the surge in emerging Asian living standards. Export prices will fluctuate, but Asian demand is likely to keep growing for decades.

Section 2 and Appendix 1 show that the mining and mining-related sectors now make up around 20% of the economy and are much larger than many people think. The mining services sector is growing rapidly at 15 to 20% a year and is now exporting successfully and expanding offshore.

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