Wednesday, July 6, 2011
The panel of economists in The Age's half-yearly conomic survey endorses the Treasury/Reserve Bank view that surging demand from China, India and other developing countries will keep commodity prices relatively high for years and perhaps decades.
They agree this will keep the dollar high, and that in turn will drive a long decline in prospects for other trade-exposed sectors of the economy. But they argue against government support to shield these industries, other than retraining retrenched workers.
Two policy proposals won widespread support. Some in the panel urged the government to make a third try at the mining tax, to extend it across other minerals sectors and raise its rate to something closer to the original plan. Many called for the proceeds to be put into a sovereign wealth fund.
The Gillard government opposes both options. Its minerals resource rent tax, to start in mid-2012, would apply only to coal and iron ore mines, and at a rate of 22.5 per cent of profits above a generous threshold. On Treasury's estimates, most of the proceeds would be spent immediately, while others warn that the spending could outweigh the revenue.
AMP Capital chief economist Shane Oliver said: ''Industrialisation in China, India and elsewhere has a lot further to go, resulting in supply continuing to struggle to keep up with demand.
''Apart from broadening the mining resource rent tax to include all mineral commodities, the best thing governments can do is to help to make sure that the whole economy is acting as efficiently as possible by boosting infrastructure, removing impediments on the supply side of the economy, and [addressing] labour shortages by training and immigration policies.
''Artificially propping up adversely affected industries would be futile and ultimately against the national interest.''
HSBC's Paul Bloxham agreed but urged the government ''to get back to fiscal surplus more quickly'' by imposing ''a larger mining tax'', the revenues of which would be put in a sovereign wealth fund and ''put aside for a rainy day''.
Richard Robinson of BIS Shrapnel urged the mining tax be extended to gold and base metals and levied at a higher rate, although he urged that part of its revenue be used to reduce company tax rates to benefit the rest of the economy.
But Paul Brennan of Citigroup said that opportunity was lost by the mishandling of the mining tax and forecast ''it won't be revisited, at least in the next few years''. He said ''the best policy response is to support retraining of workers affected by the two-speed economy''.
ACCI's Greg Evans emphasised the need for the government to run ''structurally tighter fiscal policy'' to reduce pressure on interest rates. NAB's Alan Oster added that ''the RBA will also have to take into account the effect of interest rate hikes on the less robust enclaves of the economy''.