It's all your fault

MICHAEL Pascoe explains how it is all the resource industry’s fault that there are problems with this year’s federal budget and also that the Australian economy will grow 4.25% next year.
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Staff Reporter

Published in the June edition of Australia’s Mining Monthly

Federal budgets don’t provide many laughs, unless perhaps you’re an economic modeller, tax accountant or have various other personal problems.

Nonetheless, I think there was some perverse humour to be had in last month’s effort. Or, as I’m not a tax accountant or economic modeller, I should seek professional help – and there is more of it thanks to the bigger mental health spend.

No, Wayne Swan has no future as a stand-up comedian. I also don’t think he’s particularly convincing when it comes to selling policies, even when they are good policies. Therefore it might be inadvertent that when he began lauding the importance of infrastructure investment in his budget speech, one of the first initiative’s he announced as a you-beaut idea to get the country rolling was the ability to carry forward losses on infrastructure investments when there’s a change of ownership.

“Great,” I thought, “it’s the invest-in-a-bridge-and-lose-money budget.”

But that was a silly thought – it should have been the invest-in-a-tunnel-and-lose-money budget in honour of Brisbane’s Clem7 and Sydney’s Cross City and Lane Cove Tunnels.

The digital box for pensioners at more than the cost of a new digital TV was also pretty funny, in a sad and pathetic kind of way. The cost only makes sense if the box comes wrapped in a Pink Batt and served on a solar panel. There is a line somewhere about those who never learn the lessons of history being condemned to repeat it, but that isn’t funny at all.

No, for real humour, you had to turn to the opposition and the knock-about double act of Abbott and Hockey.

It was not a good budget for Tony and Joe. Aside from the set top boxes, they really didn’t have much material to work with. And it showed. Government members were particularly chipper after Swan’s half hour upon the stage because they knew it left the opposition little room to snipe. Oh, they could keep banging on about the 2012-13 surplus not being big enough, but that set them up for trouble if they started complaining that the spending cuts that were being made were too harsh. The conundrum was demonstrated by the other official opposition, the Murdoch press. The Australian was bagging Labor for not cutting more while the Herald Sun was bagging Labor for cutting what it did.

The parliamentary opposition’s difficulty was painfully obvious in Abbott’s official budget reply speech on the Thursday night. With little room to move, Tony the former boxer decided to fight a different fight altogether, charging off after the stuff that wasn’t in the budget.

But there were still laughs before that Claytons effort. According to the Abbott-Hockey team, the federal budget’s surplus forecast was totally dependent on the commodities boom and therefore was “built on a house of cards”. I thought that was funny way to refer to our major trading partners.

Building on the theme, I heard one of them – and I can’t remember which – say something very much like: “Even if there is a surplus, it will be made in China!” As if that was a bad thing.

On the available evidence of the past two decades, I personally have more faith in the economic management of Beijing than that of Washington, London, Tokyo or Canberra. And, as the wise readers of Australia’s Mining Monthly know, it’s not just China, it’s the whole emerging nations bloc – a bloc that accounts for the majority of the world’s growth. You would have seen the International Monetary Fund report that, on a purchasing power parity basis, China will have a larger economy than the US by 2016 – just five years away.

So Hockey and Abbott apparently think the resources sector is an unreliable source of wealth, that it’s about to fall over at any tick of the Chinese clock. I don’t believe Joe is really that silly. Tony, I’m not so sure.

But if you logically follow that thought through and believe this stronger-for-longer commodities boom is about to collapse, you wouldn’t be wasting money on building infrastructure to service it. You would be silly to plough scores of billions of dollars into loading terminals and railways, let alone the massive expense of LNG plants on the northwest and east coasts. And you’d be a total fool to be digging new holes in the ground.

So all those mining and gas companies that have told the government that their capex budgets for the new financial year add up to $76 billion, well, they are idiots, punting so much on a house of cards, something merely made in China. That’s if you believe Abbott and Hockey.

Thus it’s the resources industry’s fault that there’s something wrong with the federal budget. However, according to the Reserve Bank (and anyone else with an abacus), it’s also the resources industry’s fault that the Australian economy will grow by 4.25% next year, that employment will continue to rise strongly and that people will be paid more money – so much money that inflation will rise a bit, forcing the RBA to increase interest rates.

So that’s another reason to bag the resources industry. Bloody miners. As well as despoiling the environment and destroying the planet, they’re causing economic growth and making mortgages more expensive. And apparently it’s all a house of cards.

I find that all rather funny, in the admitted perverse sort of way, but there are two other things I want to mention that are both unrelated and related to the above.

First, there was a little story in The Economist last month that mentioned there were 649 kilometres of high speed rail in China in 2008 – the 300kph stuff. That’s 649km more high speed rail than Australia has or apparently will have in my lifetime. Now China has nearly 8400km of high speed rail and it is on track (so to speak) to have 19,000km in three years time. That is just one more little anecdote to stack up in the “house of cards”.

Secondly, I chaired a post-budget lunch for a major stockbroker. The audience was made up of a couple of hundred of their key private clients – investors, rich people, or at least people richer than me. At the end of the discussion, I asked for a show of hands, who would vote against the resources rent tax mark two and maybe 10 hands went up. I then asked who would vote for the tax and scores of hands were raised. Turns out I must have walked into a meeting of the local branch of the communist party.

Michael Pascoe is a finance and economics commentator with more than 30 years experience in publishing and broadcasting.