​New MCA paper investigates reversing Australian mining’s competitive slide

A new Minerals Council of Australia paper has been released, focusing on reversing the current slide of the Australian resources sector’s international competitiveness.

The report Australia’s Competitiveness: Reversing the slide by Griffith University’s professor Tony Makin investigates what it terms “loose fiscal policy on the marked deterioration of national competitiveness”.

“Overly expansionary fiscal settings of federal and state governments in the wake of the crisis, settings that have yet to be fully reversed, have contributed to the dollar’s strength and been a major source of our competitiveness problem,” Makin states.

He uses a number of different standards to measure the nation’s competitiveness, instead of simply the traditional real exchange rate measure, and claims there has been a deterioration in these factors in recent years.

These measures include the relative price of non-tradeable goods, and the nation’s World Economic Forum competitiveness which has seen the country slip from outside the top ten to 21st.

His report goes on to say “Australia has experienced an unprecedented mining boom which sustained income growth and minimised the macroeconomic impact of the global financial crisis (GFC) in 2008-09, greatly assisted by the flexibility of the exchange rate and strong trade ties to Asia, most notably China”.

“However, the fact that Australia has not fared as badly as many other advanced economies since then has bred complacency in policy circles about the need to address a persistent competitiveness problem.”

It points, in a critical manner, to the stimulus package released during the GFC, stating “the fiscal stimulus measures, most notably the Building the Education Revolution program, failed to deliver as originally expected and left a loss of competitiveness as a lasting legacy”.

Makin explained that “it was the behaviour of exports and imports, not increased fiscal activity that was primarily responsible for offsetting the fall in private investment due to the GFC”.

The paper also weighs up the positive and negative aspects the boom had on Australian competitiveness and its economy.

“While the boom-related appreciation of the exchange rate led to a loss of competitiveness, this does not imply Australia has been producing goods the rest of the world no longer wants. On the contrary, world demand for Australia’s natural resources has substantially increased,” Makin said.

“Interpretations differ about the mining boom’s impact on Australia’s economy. On one hand, the ‘Dutch disease’ perspective highlights the negative impact of a higher real exchange rate on the competitiveness of sectors outside mining. A more plausible and positive view emphasises pursuit of the economy’s comparative advantage which has raised national income and households’ international purchasing power.”

He concludes that in order to increase the country’s standing there needs to be a “national conversation about our international competitiveness”.

“Australia will not durably improve its competitiveness without serious fiscal and structural reform, including labour market reform.

“The Abbott Government should grasp this narrative and own it.”

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