With the announcement that BlueScope Steel is shedding 1000 jobs at Port Kembla and Hastings, east of Melbourne, the reality of the so-called ‘two speed economy’ is starting to sink in. It’s not that, in the trade exposed economy, the mining companies are doing splendidly while other export-oriented industries are lagging their competitive feet. It’s that there’s a direct causal link between the mining boom and its consequences.
The frenzy of the resources boom leads to a higher dollar, and also drives up the costs of local inputs to manufacturing. What we will no doubt continue to see is far from some sort of painless and necessary ‘structural adjustment’ – unless our destiny in a globalised economy is indeed to be a quarry. That’s very far from the vision of value-added manufacturing, innovation and smart services that accompanied the opening up of Australia’s economy by Labor in the 1980s and 90s.
The mining industry has spent, and continues to spend, enormous amounts of money to convince Australians that its continued strength is essential to, and beneficial to, the national economy. In fact, there is no “trickle down” from the mining boom because it is a small employer of labour and most of its profits are repatriated. The fact that Australia’s Gross National Income is lower than its GDP while Japan’s is considerably higher (and Japan is normally thought of as a sclerotic economy) is demonstration enough – we, as a country, earn a lot less than we produce.
Fiscal policy is only of limited utility in addressing the distorting effects of the mining boom, because there are inflationary pressures coming from the demand for labour, goods and services from the resources sector. So, interest rates are higher than they ought to be, and will likely remain so.
The obvious solution is a proper Resources Rent Tax.
The irony here is that BlueScope itself was agitating against a Carbon Tax while it’s been their vulnerability to the distorting effects of the low tax rates paid by the mining industry that has cruelled their chances of competing in export markets, to their cost, and more importantly, to the great cost of their workers.
