The Australian economic outlook

Benefits of mining boom have peaked

The benefits of the mining boom have peaked and the federal government must abandon its commitment to a budget surplus by 2012/13, a new study says.

Channel Nine News

Thursday, November 10, 2011

The Australian Economic Report, by Victoria University economists Peter Sheehan and Bob Gregory, says the boom will continue and mining investment will increase but their net benefits for the Australian economy have peaked.

"The boom is no longer boosting growth in the Australian economy nor contributing to additional improved welfare for Australian citizens," Professor Sheehan says.

"The positive effects of the boom have become more muted, while the negative effects are becoming more pronounced."

The study says many new mining projects have limited local content and are foreign owned, giving little direct benefit to the Australian economy.

The shift towards offshore liquefied natural gas (LNG) mining, which relies heavily on foreign-supplied equipment, and the high value of the Australian dollar are compounding the problem.

The economists say the high exchange rate has left local industries such as manufacturing, tourism and education vulnerable, threatening jobs and slowing the economy.

They urge the government not to depress the economy further by slashing spending in a bid to bring the budget back into surplus as planned.

"With the mining boom boosting the economy further each year, it made sense for the government to take $50 billion - equivalent to about one year's growth in GDP (gross domestic product) - out of the economy over two years to achieve a budget surplus in 2012/13," they said.

"But without the ongoing boost from mining and with the economy slowing this is no longer appropriate."

They also said further reductions in interest rates by the Reserve Bank of Australia may be necessary to boost spending and stimulate the economy.