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Mining the truth: The rhetoric and reality of the commodities boom

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Public perceptions of the size and significance of the mining industry to the Australian economy are radically different to the facts, a new study by The Australia Institute's Dr Richard Dennis and David Richardson reveals.

Is mining driving the Australian economy off a cliff?
"The future is in our hands, and it will be defined by the way we handle the current minerals boom. Get it wrong, and we falter. Get it right, and we set the nation up for decades to come."
~ Prime Minister, the Hon. Julia Gillard

The Australian economy, like all modern economies, is diverse and ever changing. In 1951, agriculture accounted for just over 30 per cent of Australia's GDP—much bigger than mining has ever been—but today agriculture represents just 2.6 per cent of GDP. Sixty years ago it would have been inconceivable to imagine agriculture shrinking to less than a tenth of its size as a share of the economy. By the same token, nobody would have predicted that the telecommunications sector would become so large; the mobile phone industry employed virtually nobody in the 1980s. But change is a signature feature of a healthy economy, and these things did indeed take place.

Recently the mining industry in Australia has boomed, surging from around four per cent of GDP in 2004 to around nine per cent today. But the rise of the mining industry is neither inexorable nor universally beneficial. While the high exchange rate associated with the mining boom has brought down the price of imports, at the same time it has ensured that trade-exposed industries such as tourism, manufacturing and education will find it harder to compete internationally.

Much has been said about the changing face of the mining industry, where the effects of the boom have been both substantial and positive. But until very recently there has been far less discussion of the impact of the mining boom on the rest of the economy, including those areas which have suffered as a result. While one might assume that any expansion in the mining industry simply adds to the overall size of the Australian economy, in reality the operation of the macro economy is far more complex. Indeed, much of the growth in mining comes at the direct expense of expansion in other parts of the economy.

The paper describes the various ways in which the mining boom is changing the Australian economy. In particular, it highlights some of the negative consequences of the boom which are rarely acknowledged in public discussion of economic issues.

For example, when asked what percentage of workers they believe were employed in the mining industry, the average response was around 16 per cent, when according to the Australian Bureau of Statistics (ABS) the actual figure is 1.9 per cent.

The survey also found Australians believe that mining accounts for more than one third (35%) of economic activity. However, ABS figures show that the mining industry accounts for around 9.2 per cent of GDP – about the same contribution as manufacturing and slightly smaller than the finance industry.

The survey was conducted as part of a new research paper by The Australia Institute. The Institute's Executive Director Dr Richard Denniss launched 'Mining the truth: The rhetoric and reality of the commodities boom' on Thursday 8 September at the Institute's annual conference in Sydney.

Dr Denniss said the mining industry's expensive advertising campaigns had clearly had an impact on people's perceptions.
[Listen to a debate between Dr Richard Denniss, executive director of the Australia Institute, and Minna Knight, a director of the Australian Mines and Metals Association.]

"The mining industry likes to portray itself as a big employer, a big tax payer and a big money maker for Australian shareholders. Yet the reality just doesn't match the rhetoric," said Dr Denniss.

"The mining industry's advertisements ignore the way that the mining boom is driving up the exchange rate, driving up mortgage interest rates and driving down employment in other sectors of the economy," he said

"It is a bit rich for former BHP Billiton chairman Don Argus to talk about declining productivity growth when an analysis of the figures actually reveals that productivity in the non-mining sectors is growing quite rapidly. The irony is that it is the rapid decline in productivity in the mining industry that is driving down the national figures."

The paper also reveals that the mining boom is driving a blow out in the current account deficit with the International Monetary Fund expecting the current account deficit to reach 6.5 per cent of GDP in the medium term. In the middle of a supposed export boom this will put Australia back into Paul Keating's 'banana republic' territory.

"It's amazing to compare the rhetoric of the mining industry with the reality of the national accounts. Not only is the mining boom reducing the competitiveness of other exporters but the enormous outflow of profits to the foreign owners of the mining companies is driving up the net income component of the current account," said Dr Denniss.

"It might seem bizarre, but Australia is set to simultaneously experience a mining boom and a blow out in our current account deficit," he said.

"The mining industry is in the middle of planning massive further expansions. But the faster the expansion of the mining industry, the lower the level of employment in other industries will be. You don't have to be a protectionist to see the merit in slowing the approval of massive new mining and coal seam gas ventures."

In summary, Australians believe that the mining sector:
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