The 2011-12 Budget correctly recognises the importance of a strong and growing minerals sector to Australia’s economy and to Commonwealth revenues. The Budget headlines – strengthening economic growth, near full employment and a Budget returning to surplus – all rest on Australia securing the dividends of what the Treasurer calls “Mining Boom Mark II”.
With an estimated $140 billion worth of projects underway or planned in the minerals sector alone, the challenge for this Budget was to lock-in the potential gains in national income, jobs and exports.
In this respect the Budget makes three important contributions in tackling emerging capacity constraints.
First, it provides a promising framework to tackle the looming capacity constraint of skilled labour in our growing minerals sector. Reform of the vocational and technical education sector will now be crucial in ensuring the system is more market responsive.
Second, a lift in permanent skilled migration, the creation of enterprise or regional-focussed migration agreements and a streamlining of the processing of temporary skilled migration will help tackle immediate constraints.
And finally, targeted spending on regional infrastructure, including transport bottlenecks in West Australia and Queensland, is overdue but welcome.
The Budget also contains welcome measures to assist the eventual return to surplus. The real issue, however, is that with Australia’s terms of trade at an historical high the budget should already be back in the black. There remains a big medium-term task to tackle the underlying structural deficit in the Commonwealth Budget.
There are still obvious gaps in the development of a comprehensive and coherent framework for “maximising our advantages” from future mining industry investment. This was the test the Treasurer set for the 2011-12 Budget back in January this year.
This Budget was an opportunity to outline a strong productivity agenda in areas like project approvals, infrastructure and regulatory reform and to signal the critical importance of flexible labour market arrangements to securing the gains from future mining investment. There remains much to be done on this front.
The Government’s decision to return to a CPRS-style carbon pricing scheme also threatens to contradict this objective. On current estimates, 84 per cent of Australian exports will enter global markets saddled with carbon costs not faced by most of their international competitors. Without globally competitive climate policy settings, Australia will lose out to competitor countries like Canada, China, Indonesia and Brazil looking to grab market share in mineral commodities.

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