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August 2nd, 2013 
Treasurer Chris Bowen MP, and the Minister for Finance and Deregulation, Senator Penny Wong during a press conference where they released an Economic Statement in Parliament House in Canberra.
Source: News Limited
AUSTRALIA’S biggest mining boom since gold rush days has ended, sooner than anyone expected.
The receding tide of mining investment will drag on growth for years to come, raising serious questions about what will replace it.
It has already cut a swathe through government revenues, as revealed in Friday’s mini budget.
Once again, Treasury’s forecasts for the economy have turned to quicksand, just three short months out from the May budget. The jobless rate is set to bust through 6 per cent and economic growth to slow to a 2.5 per cent crawl.
Australia’s L-plate Treasurer, Chris Bowen, delivered the bad news with a mini-budget dripping in red.
“Australia is going through an economic transition,” Treasurer Bowen said on Friday. “Not a crisis, but a transition.”
A political quick-fix has been hastily cobbled together to fudge the budget back into black and make up for a $33 billion body blow to government coffers since the May budget More than $17 billion in “savings” have been found to allow Labor to forecast a figleaf surplus in 2016-17.
Smokers will be slugged, bank deposits taxed, the public service squeezed and foreigners denied aid to get the budget back to black.
But Australia’s budget crisis has only just begun.
The economy is at a cross roads. Foreigners are simply not willing to pay as much as they once did for our goods and services.
Treasury is forecasting a 10 per cent fall in Australia’s terms of trade – the prices we receive on our exports versus the prices we pay for imports – next year.
Treasury has been forced – again – to concede that its previous forecasts were too optimistic.
The economic statement reveals economic growth will slow to a below trend 2.5 per cent this financial year, a quarter of a percentage point downgrade on the May budget.
Bad news for workers, the jobless rate is set to rise to 6.25 per cent – a full percentage point higher than Treasury expected three months ago.
And even worse news for family budgets, wages growth is now expected to slow to 3.25 per cent – only just keeping pace with forecast inflation of 2.5 per cent.
The end of the mining investment boom has happened sooner than anyone expected.
The real questions worrying most economists is: what is left to replace it?
There is only so much the Reserve Bank can do with interest rate cuts. The Reserve is again poised to cut interest rates this Tuesday, but previous cuts have had little impact to date.
Debt-shy households are reluctant to spend up big as they did before the global financial crisis. They have been busily using lower interest rates to pay down their debts rather than spend more. House prices are in the doldrums, although have shown recent signs of lifting. Retail sales are depressed.
Meanwhile, the international economy remains as volatile as ever. Europe is showing no signs of lifting out of its half decade long depression. Now the Chinese dragon is showing signs of slumber.
Falling commodity prices, a weakening jobs market and trouble in the Chinese banking system all present fresh headwinds for the Australian economy and budget.
But just as the economy needs a period of policy stability – as stressed by Reserve Bank governor Glenn Stevens this week – it is getting short term policy patch up jobs from Kevin Rudd.
Things are only going to get worse for the budget, unless tougher decisions are made.
In future years, an ageing population will add to health and welfare spending. A dwindling number of working aged Australians will be left to foot the bill.
The ageing of the population is a ticking time bomb that this mini-budget leaves unexploded.
This economic statement shows the debt ceiling of $300 billion will be breached whichever party wins this election, with gross debt forecast to rise to $390 billion in coming years.
Australia needs a new wave of micro-economic reforms to boost productivity and unleash growth. Red tape and government regulations grow every year, capturing business in a stranglehold of paper work.
No wonder business confidence is on the floor. Australia’s record run of 22 years of consecutive growth will not continue unless businesses regain the confidence to invest and employ.
The falling Australian dollar will help, removing a shackle from manufacturers, domestic tourism operators and education service providers in recent years.
But will relief come soon enough?
At least this mini-budget will clear the way for Kevin Rudd to finally call and election and remove a major source of business hesitation.
Under the shadow of an election is no place to begin the difficult task of fixing the budget.
That task will fall to whichever party wins power. It will require a new era of consultation with business, a back to basics conversation with Australian about what services can be afforded.
The quick fixes in this economic statement will not be good enough. A key question for voters is whether Rudd and co have shown a level of policy capability to make them believe a re-elected Rudd government would do any better to provide stability and confidence in government.
The opposition too has questions to answer about how it will pay the cost of its promises. As former Reserve Bank board member Jillian Broadbent has highlighted, the childish nature of political bickering provides very little confidence for households in the ability of the Australian economy to navigate the turbulent waters ahead.
It all comes down to confidence. And that is the most scarce commodity of all.
It’s not all bad news. Lower interest rates will help to relieve family budgets and rates can be expected to remain low for some time to come. The jobless rate, while climbing, remains well below recessionary levels. The falling dollar will ease the squeeze on some employers.
Bowen is right that the economy is in transition, not crisis. Voters will decide if he is the best person to manage that transition.
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