If you’re blaming mining you’ve got rocks in your head
Of all the voodoo economic nonsense circulating at the moment, none is more curious than the idea that the current mining boom is more trouble than it’s worth. You’ve probably heard the claims.
Mining is racing ahead of the rest of the economy, soaking up skilled workers and other factors of production, leaving the non-mining industries in a state of semi-permanent weakness.
According to the script, the boom is the sole cause of the soaring Aussie dollar and - according to one of the more hysterical assessments offered last week - tearing apart the very fabric of our economy. A sober look at the facts paints a very different picture.
First up, here’s what the Reserve Bank of Australia has said about the three mining booms that have preceded the latest industry expansion.
“.... the overall impact of each boom was to strengthen the economy. Increased investment in mining, higher income from mining activities, and the need for increased infrastructure to service the mines all worked in this direction.”
That’s strengthen the economy; not tear it apart.
The factors pushing up the Aussie dollar are also more complex than just the boom. Yes, the higher Australian dollar compared to the US currency is partly a function of the strength of mining, but it’s also due to significant economic problems in America and elsewhere.
As a result of the continuing aftershocks from the global financial crisis, American interest rates are low compared to Australia’s and this drives currency traders to the Aussie. Increased demand increases the value. Our stable political system and the Reserve Bank’s hands-off approach to managing the value of the dollar also adds significantly to the attractiveness of the Aussie as a currency of choice.
A look at recent history shows that when overseas economies are stronger the Aussie is worth less. Our dollar was worth about 75 US cents in 2006 – and the mining industry was booming at the time.
The idea that mining is soaking up all available workers is similarly not supported by the available data. Since the current boom began in 2005, Australia’s terms of trade have grown by nearly 60 per cent. In the same period, total employment has grown by about 16 per cent.
The biggest gains in employment have occurred not in mining, but in the services sector, which has created jobs for around 1.5 million people. Over the same period, mining employment has increased by about 100,000. Mining presently employs less than two per cent of Australia’s entire workforce - about 211,500 people.
While the mining sector is growing strongly, it is not weakening the economy by stealing every available worker.
But don’t just take my word for it. Here’s what the Federal Government’s Productivity Commission says about the changes in sectoral employment in Australia.
“...the pressures being placed on our traded goods sector are mainly due to us being richer than we were, and consuming more goods and (especially) services, rather than because mining draws labour or capital from manufacturing and agriculture.”
There is no contest that manufacturing in Australia is declining - this has been the case for the past 40 years, well before the latest mining boom. As a result, several organisations have demanded that mining – because it’s making a good dollar – should buy Australian.
Here’s some good news - it already is. A steel industry report released in July found that in 2009 the miners bought $85.7 billion worth of goods and services of which $75.8 billion or 88 per cent was supplied by local industry.
Meanwhile, a review of contracts tendered by the Australian Government over the same period showed that 69 per cent of the goods and services were sourced from local businesses. Many of the same groups claiming that mining is ignoring local content, also charge that the industry is not paying its fair share of tax.
So here’s exactly what we are paying. In 2010-2011, miners are expected to pay a $23.4 billion in taxes and royalties to Federal and State Governments. This is based on a survey of actual taxation payments collated by the global accounting firm Deloitte.
That $23.4 billion is more than the Australian Government’s entire annual expenditure on Australia’s defence forces, and it’s just the beginning of the total tax bill. Under the new mining and carbon taxes, the industry will contribute a further $6billion per year.
There’s no question that mining is zipping along at the moment, but be wary of those seeking to blame it for everything that’s going wrong. They’re running a political agenda rather than a sensible economic argument.
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