Mark Bishop (WA, Australian Labor Party) Share this | Link to this | Hansard source

Economic matters are rightly the key policy focus for us as we observe the current dire straits of the world economy and our privileged position within it. Today I would like to speak about the resources boom and the Australian economy and society, especially the need to foster urgent structural change, not impede it. In particular I want to draw attention to a report by Port Jackson Partners, issued by the ANZ Bank late last year. That report details the massive potential growth and change facing our economy from the mining boom. It also looks at the roadblocks to the achievement of that growth and change. It echoes the views of many respected economists that we need to make major structural changes if we are to keep our economy thriving, regardless of what is going on in the old world, which is of less significance for us now than it has ever been.

The real question, as Port Jackson Partners imply, is whether we really understand the magnitude of this opportunity that is coming our way. The question is: are we capable of taking full advantage of that opportunity? The report says:

The shift of economic growth from the developed world … is unleashing extraordinary forces in the global economy. Huge low-income populations across the developing world are demanding more basic necessities: minerals, energy, food and fibre. In particular, commodities such as iron ore, copper, coal, aluminium, gas, grain, protein and fibre are the central ingredients in the industrialisation and urbanisation of developing countries. …

The developed countries of the world have already created a middle class of nearly one billion people—yet well over five billion … are still to reach middle class income levels.

More to the point, the report said:

This is not the stuff of a routine commodities ‘boom’, but rather a more fundamental global process already well underway that will see billions more people achieve middle class living—and it has decades to run.

That is, for the first time in history, growth is now concentrated in the developing world, not the developed world. That developing world is on Australia's doorstep and that has other flow-on consequences. For example, as with the Japanese economy in its heyday and China today, there are direct benefits to be gained in the future, especially for tourism and education, as this Asian middle class quickly grows.

There are a few key points emerging from this analysis which we as a country and as a society need to heed. First, this entails a significant shift in our economy which we need to be more aware of and which we must foster urgently. Foremost, it entails a shift from a consumer based economy to an investment based one. With this goes structural change in which the mix of industry we currently have will change to one supporting the new growth areas.

The second key point from this analysis is that the predicted growth, in the mining sector especially, includes support industries. These include, for example, mining services, engineering consultancies, heavy industry construction, plant hire, explosives manu­facture, machinery, surveying services, ports, rail and road freight, to name a few.

Mining is already a sizeable sector. The report indicates over half the capitalisation of Australian stock exchanges comprises commodity exports and those supplying them. Port Jackson Partners estimates sales in the supply and services sector will grow to around $200 billion by 2030. That is for the domestic market alone. As the report says, this is a classic example of clustering of new industries where there is significant national advantage. It is about clusters of industries turning comparative advantage into competi­tive advantage. It is about entirely new world-class firms and industries spinning off from the resources boom in their own right. It is about new firms and industries becom­ing centres of growth and dynamism within Australia, not to mention the international flow-on.

For example, last year I referred to the huge demand for Australian expertise in the development of the mining industry in Africa. In many developing countries extraordinarily rich in minerals, there is a huge deficiency not just in investment but in the necessary know-how. Many Australian companies—hundreds—are already involved, but the potential for the mining services sector seems unlimited. Importantly, it includes government regulatory models and institutional frameworks. So it is already happening. This sector has the capacity, like the mining industry, to absorb quite quickly the shift of labour and resources from other sectors.

The third point is that, although this shift is inevitable, the consequence for other parts of the economy will be continuing growth as well. Food production, retail and general consumption will continue to be fostered by growth, even though the industry base has shifted. This is simply because national wealth will continue to grow as the result of this shift in investment and production. For example, it is estimated by Port Jackson Partners that, if Australia expands capacity rapidly enough, commodity export revenues could reach $480 billion in real terms by 2030, despite significant price reductions, and direct and support sector employment could double, with at least 750,000 jobs created.

Investment of $1.8 trillion is required over 20 years to support that growth, and that figure is half of Australia's current capital stock. The value of commodity exports could reach 19 per cent of GDP annually on average over the next five years; and the investment required would be on average almost 6½ per cent of GDP annually. These are simply amazing projections, but achievement is dependent on rapid economic structural change. But there are many challenges in the short term. The largest challenge is whether we as a community understand the true nature of this shift; that is, to survive we must seize the chance and run with it.

Unfortunately, there are many who believe that, like the history of mining, the boom will come and go. 'It is temporary. It is nothing more than a transitory phase'. But, as the Port Jackson report tells us, that is not going to be the case. We need to understand the changing environment in which we are living. Unless we do, we will arguably end up in the same morass as Europe—that is, an introspective, cosseted and indulgent society which consumes more than it produces, has falling productivity and is left with massive debt and little capital for necessary investment going forward.

We are very lucky to enjoy our economic position in the world at present, but the ongoing challenge is serious. We must pass the opportunity for higher consumption and support the economic shift to an investment economy. The report clearly shows that that shift is well underway and is increasingly encouraged and fostered by the current government. For example, mining and energy investment has increased from two per cent to four per cent of GDP in the last six years. As we all know, we have been in government for the last four of those six years. The mining support and service sector has increased employment by 40 per cent in that period—more particularly in the last five years. Hence there were labour shortages elsewhere in less profitable sectors.

The report identifies two other key challenges, apart from the failure of the community to understand the reality and nature of these changes. The first is the need to rapidly develop new skill sets to cope with the new demand from existing and developing support industries. The second is the need for capital markets to come to terms with the new expanding investment that is required and needed. To quote the report:

Markets and businesses will reallocate economic capacity to the uses with the highest returns. This could lead to some crowding out of non-resource sectors of the economy, such as non-resource related manufacturing, as economic resources move across the economy.

The report then makes a stark choice in policy terms for governments: stall the inevitable growth by protecting other industries which are unlikely to compete for labour and finance and which are exposed to exchange rates and rising costs or proactively build capacity to support that growth, adding supply-side capacity by way of skills, growth finance, and technology. The clear inference is that we have little choice, and probably no choice, but to go with the latter—simply because it is already happening.

The fact is that mining and support industries are shifting our economy dramatically. In the last five years, gross commodity exports were more than 50 per cent of Australia's growth in GDP. Investment in minerals and energy increased by 2½ times. There was also a huge shift in our export focus away from Europe and the USA to our own region. This was all accelerated by the global financial crisis which has enveloped those old economies and spared the new ones in Asia. Moreover, good economic management has resulted in low public debt, stable employment and a strong currency. Terms of trade are, as we know, at a 60-year high.

The single question for me is whether we fully grasp the opportunity or stifle it through inaction. The answer is obvious. The report on that basis goes on to explore the options and the outcomes which flow from the strength of commitment to be made. The best case outcome assumes an optimum response to investment needs, while the worst case is a 'do nothing' response which I hope is inconceivable.

The report also details many implications of this massive opportunity, which I will summarise. Capital investment needs will increase enormously. It has already doubled from $30 billion per annum in 2006 to $60 billion in 2010 and it is likely to climb to $100 billion per annum very quickly. This has clear implications for markets which are already stressed due to the GFC. It has already prompted a debate about foreign ownership—not unlike our experience decades ago with Japan. Tax and royalty revenue is likely to increase by $34 billion per annum. Capital gains to investors, including superannuation funds, will increase , creating new demand for goods and services. Stronger exchange rates will impro­ve consumer purchasing power, although import-competing business, including some retail, will come under greater pressure. We see some of that already.

While there might be some crowding out of trade-exposed sectors, the impact can be reduced if capacity is added rather than simply shifted. The commodity support cluster of industries is likely to grow faster than the mining and resource industries themselves. It means rapidly-increasing employment opportunities and increased demand for relevant skill sets within industry. The flow-on will be much broader than direct mining and support, to include legal, banking and accountancy, for example. As the strength of this new cluster grows, so will its demand for research and develop­ment and tertiary training. There are already new challenges from other suppliers in South America and Africa, but the emphasis will be on high-tech capacity, reliability and quality of supply. Despite price cuts, profitability will be maintained through larger volumes—all possible with adequate investment and infrastructure.

Finally, achieving all of this will be difficult unless there is a whole-of-economy response across governments, business and the wider community. That in turn requires immediate awareness and, most importantly, strategic leadership. Hence the report also poses some challenging questions: if 750,000 jobs could be created, where would the skills come from? How will the technical and tertiary education sector respond? Will the workforce be sufficiently flexible and mobile to facilitate the shift? (Time expired)