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Slowdown a rich lode for politicians

Date

Australian Financial Review chief political correspondent

View more articles from Phillip Coorey

Last week, when the Reserve Bank cut interest rates and downgraded its forecast for the economy, Tony Abbott became the latest politician to declare the mining boom over.

He blamed the government, specifically the mining tax.

In reality, the mining tax, whether the miners pay it or not, is having next to nothing to do with the minerals sector coming off the boil. 

''The whole point with the mining tax was to slow down the mining boom. Well it's worked fellas, it's worked," Abbott said.

''The mining boom has ended prematurely, so it seems, because of bad policy from this government and what we need above all else with the end well and truly in sight is a government that gets the economic fundamentals right.''

Eroding this argument somewhat is the continuing equal and opposite assertion by the Coalition that the miners won't actually pay the tax because they outsmarted the government when it was negotiated. The veracity or otherwise of that argument will be known in about a fortnight, when the iron ore and coal giants stump up the first instalment of the tax.

In reality, the mining tax, whether the miners pay it or not, is having next to nothing to do with the minerals sector coming off the boil. It's predominantly the slowdown in China.

The problem is not unique to Australia.

Two weeks ago, The Wall Street Journal reported that slowing growth in China was taking "a brutal toll'' on Appalachian coalmines and towns.

Appalachia, one of the world's richest deposits for high-grade metallurgical coal, used for making steel, has seen prices drop from $US330 a tonne last year to $US170 today, as China's steel industry begins to slow, with the rest of the economy. Chinese steel production consumes half the world's metallurgical coal and it is forecast to make a loss this year.

Exacerbating the problem in the US was the resurgence of metallurgical coal production in Australia, which had been severely disrupted by the Queensland floods.

There is no mining tax or carbon tax in Appalachia and what is happening there is a microcosm, albeit with a sharp focus, to what is occurring in Australia.

At the speech she was to deliver in New York before illness struck, Julia Gillard's aim was to impress upon global investors the Australian economy was about more than commodities, and therefore, more robust than commonly perceived.

That was not to downplay the significance of mining, and the speech, delivered by Bob Carr, urged investors to keep the current situation in perspective.

"Australia's mining boom has long to run,'' the Minister for Foreign Affairs declared on behalf of the boss.

Iron ore prices this year will average about $US126 a tonne and are forecast to fall to $US101 next year. "Ten years ago we got around $US20 per tonne,'' he said.

Similarly, coking coal was forecast to fall from $US211 a tonne to $US183, still well above the $50 per tonne a decade ago.

Still, as the speech went on to concede, "the easing in prices squeezes profits, meaning slower revenue growth for government and hard decisions on the expenditure side''.

As the government struggles now to find more cuts to replace the revenue loss and meet is promise to return the budget to surplus, thought is also turning to how to tap into Asia for the longer term.

The government is soon due to release its white paper on the Asian century, which at its core will identify areas of opportunity in a growing Asian middle class and how to exploit them.

Last week, in one of two speeches he gave on China, Kevin Rudd got ahead of the white paper and gave his own version.

He said as mining came off the boil, Australia needed to lift its game to tap into the increasingly lucrative Chinese tourism market.

He said Qantas, as the national carrier, should fly directly from Sydney to Beijing and the Australia TV network must stop showing "foreign-produced television series … We should be using this taxpayer-funded resource to promote Australian tourism more broadly across emerging Asia.''

Rudd suggested the government make it easier for Chinese tourists to obtain Australian visas, the domestic tourism industry start tailoring packages for first-time Chinese travellers, and for there to be more emphasis on language learning.

He began by noting that in 2007, just after he became the opposition leader, he was mocked by the Coalition for arguing Australia needed to prepare its economy for the end of the mining boom.

''The global and Australian impact of a slowdown in Chinese demand for Australian resources and energy is already being felt in the Australian economy,'' he said.

''This does not mean that Chinese demand for Australian resources and energy exports [is] likely to collapse. But it does mean that the rate of increase is likely to slow.''

It was a speech noted by Rudd's colleagues for its timing as much as its content.

Phil Coorey is the chief political correspondent.

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15 comments

  • I think the public is well versed on ABBO's record on predicting the future - More and more huff and no puff.
    He also identify/predict $50 billion in cost savings and will be interesting when he release his figures.
    He forcast/predict Australia economy is heading for armageddon with the carbon tax is a fizzler.
    His comments/predict that the country's will end up like Greece is more negativism.
    His speech in China to scrutinise foreign investment fell on deaf ears.
    He is making himself a goose everytime he speaks and could well earned the title of
    "The man who cried wolves".
    My prediction that history might repeat itself on what happened in 1991. If ABBO cannot squash quiet dissent in his party, then a Turnbull/Hockey unity ticket will roll ABBO soon.
    The focus is on him to prove that he does have policies and vision rather than relying on his attack dog/conquer at all cost strategy.

    Commenter
    Same Old Same Old
    Date and time
    October 08, 2012, 9:33AM
    • He also won't win the next election for the LNP.

      Commenter
      Bennopia
      Date and time
      October 08, 2012, 2:48PM
    • I don't know. Mr Abbott prediceted the great big wrecking ball smashing through the whole econony and it has, through China, Australia and Appalachia. Aren't pensioners now starving to death with the great big new tax on everything making life unaffordable? I've heard respected economists say that Australia will be just like Greece soon....

      Commenter
      Dafydd
      Date and time
      October 09, 2012, 7:12AM
    • four biggest budget deficits in our history despite record mineral prices, gross debt $140 billion plus, last years deficit was twice what was budgeted $44 billion. it took costello 9 years to pay off the last labor government debt of $40 billion, but the size of the debt at the next election might never be paid off. And Swan is still borrowing to pay pensions and family benefits as the government has no cash he borrowed $2 billion on monday last week. What wrong with journalits these day they would rather spin than print any sort of fact (not phil probably the best in fairfax)

      Commenter
      forrest
      Date and time
      October 09, 2012, 8:29AM
    • Good logic and consistency never is a problem for Abbot. That's why the huge electricity prices of the last few years are the responsibility of the carbon tax which followed them. Perhaps we need to put logic back into schools.

      Commenter
      Good Logic
      Date and time
      October 09, 2012, 9:07AM
  • Fancy Kevin Rudd being the only one to predict that the mining boon would end,
    like that's never happened before.

    Commenter
    SteveH.
    Date and time
    October 08, 2012, 9:33AM
    • Tony Abbott....the PM we never had.
      Mr Rudd Ex PM Ex Foreign Minister..... I thought. Here I was thinking the the ALP had totally erased him from history earlier at the ALP national conference. Who is leading this country?

      Commenter
      Beetle007
      Date and time
      October 08, 2012, 10:04AM
    • Good question, unfortunately there isn't a good answer, the role seems to be divided between a pale looking middle aged lady with reddish hair, an acolyte of Bruce Springstein, a failed NSW premier and an odd assortment of characters in background chanting
      "Rabbott's to Blame, Rabbott's to Blame".

      Although to be fair, it does seem recently that an aging talking head
      from 2GB has been getting some action from the chorus.

      Either way its fairly ordinary acting.

      Commenter
      SteveH.
      Date and time
      October 08, 2012, 10:37AM
    • SteveH

      Interesting that while the handbag hit squad goes about its business, Ms Gillard conveniently drops pretty well off the radar.

      No doubt she's doing her bit for the strategy.

      Commenter
      $keptic
      Location
      Melbourne
      Date and time
      October 08, 2012, 2:28PM
    • Well we've seen Julia in a number of personas, this 'Julia as victim'
      seems to have produced the best media results.

      But I wonder how long it can be sustained, like anything,
      the longer you stretch it, the thinner it gets.

      Commenter
      SteveH.
      Date and time
      October 08, 2012, 3:35PM

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