Tuesday, September 7, 2010
TODAY the three rural independents are expected to end the political uncertainty hanging over Australia since the August 21 election, and decide who, if anyone, will govern us for the next three years. But last week, amid the fog of uncertainty engulfing federal politics, the Bureau of Statistics sent out a burst of light to illuminate the economy. It issued new figures on GDP growth, surprisingly strong figures that dispelled some of the uncertainty that the new government will have to deal with.
In so doing, they made it obvious that the biggest economic issue confronting the government is not going to be deficits and debt, the subject of obsessive focus of both parties during the campaign. It's not even going to be interest rates, or infrastructure.
No, the key economic issue of the next three years will be skills training. The test of how well we handle the years of economic recovery will not be how fast we get the budget back into surplus, but how many Australians acquire the new skills employers will need as the recovery rolls on.
Assuming China's economy keeps expanding fast, then our economy too will expand at a reasonable clip. The risk to it will be inflation. And the best way to minimise that risk is to find ways to attract more workers, young people, unemployed and workforce dropouts into skills training so that we do not run out of skilled workers, forcing employers to bid up wages.
It would be an even bigger challenge if the three rural independents opt today to entrust the Coalition with government. Tony Abbott's seriously silly pledge to cap net migration at 170,000 a year would limit the ability of companies to bring in skilled workers from overseas, making it even more urgent to find ways to catch and skill our own.
It's not the only big challenge we will face. We need to apply the bipartisanship of recent days on parliamentary reform to the task of putting in place an agreed system of carbon pricing, either an emissions trading scheme or a carbon tax. Without it, we will be at risk of power shortages as electricity companies delay investment until they can make long-term decisions with confidence.
The next government will need to come up with solutions to the growing crisis of young and low-income Australians being priced out of home ownership. It will have to do everything it can to offset the real danger of Australia becoming a two-speed economy, in which the mining sector crowds out everything else. And the budget outcomes matter.
Three months ago, the economic outlook for the world and Australia seemed less certain. The Greek debt crisis had exposed how serious the debt problems facing European and US governments had become. Even China's growth seemed at risk. Markets went wobbly, banks hung on to their cash and for a while there were shades of the panic of 2008.
Those global fears have now receded, notwithstanding the deteriorating outlook for the US economy. Given the Reserve Bank's success in tipping the economy's path over the past year, I see no good reason to challenge its forecasts that we are heading for above-trend growth of 3.75 per cent in 2011 and 4 per cent in 2012.
But that's not all the good news. The Reserve is forecasting and the Bureau of Statistics confirms that the record prices being paid for Australia's mineral exports will trigger the biggest mining boom we've ever seen. And that will have serious downsides and challenges.
Mining investment in the '00s trebled in size to become 3 per cent of today's economy. But, on their own estimates, mining companies plan to lift investment by a further 58 per cent over 2010-11. They won't be able to, of course, but it will trigger a bunfight as they compete furiously for scarce resources of skilled labour and equipment to invest in developing new mines, expanding old ones, and improving their transport links.
One way of dealing with this is the way the Reserve dealt with it in 2007-08: by raising interest rates as needed to ensure that if mining is running hot, then the rest of the economy must be cooled to keep the whole engine from boiling over. That could have serious implications for Victoria, and the south-east in general, as higher interest rates and a higher dollar press down on consumer spending, and investment and jobs in other industries.
A better way would be for the next government, and the mining industry, to recognise that the problem the Reserve is tackling is largely generated by a lack of skilled workers, and to work out how government and industry can change their current policies to open up more pathways for Australians to develop the skills the industry needs.
One of my concerns about the election campaign was that this issue, so central to our economic future, was essentially ignored by both sides. Rather, growth was taken as a given, and Labor and the Coalition competed on offering new entitlements to distribute the rewards of growth, rather than on how to ensure that growth is sustainable.
A classic example was pointed to by David Murray, chairman of the Future Fund, in the way Labor has designed its mining tax package. Yes, tax the miners on their excess profits, he said, but lock that money away for future needs, rather than using it to finance tax cuts, superannuation benefits and other entitlements which will have to be paid whether the miners are making super profits or not.
I'm not nostalgic about the '80s. But it is simply a fact that both sides of politics in those days were far more aware of our economic vulnerability, and knew that leaders had to make tough decisions to deny benefits today so they could invest in ensuring prosperity tomorrow.
Whoever forms government today, they need to govern for the long term.