The mining boom is highlighting capacity constraints and masking underlying structural weaknesses in Australia’s economy, according to the Minerals Council of Australia’s Pre-Budget submission to the Federal Government.

 

Flat-lining productivity and supply side bottlenecks for labour, capital, materials and infrastructure represent a significant threat to sustainable growth in Australia and to the nation’s ability to take advantage of strong mineral commodity demand.

 

These intertwined challenges should be the focus of the 2011-12 Budget, together with assisting communities getting back on their feet from the summer weather disasters, the submission says.

 

“Australia requires a bolder and better integrated economic reform agenda if it is to convert current strong demand for mineral commodities into lasting prosperity for the benefit of all Australians. Policy settings need to take full account of the mining industry’s globalised nature, where companies have a range of investment and production options and where Australia has no monopoly on resource endowment,” the submissions says.

 

“Last year’s resource taxation debate highlighted this imperative. It is no less relevant to climate policy decisions this year and to the broader economic reform challenge of tackling the nation’s capacity constraints and flagging productivity performance. In reality, there is a small margin of policy error if Australia is to take full advantage of the boom.”

 

The pre-Budget submission says the Commonwealth should focus on three policy imperatives in framing the May Budget and wider economic reforms. These are:

 

1.       A budgetary strategy founded on prioritising productivity-enhancing investment and long-term fiscal discipline. The time is right for a sweeping reappraisal of Commonwealth expenditure programs to prioritise investment over consumption, to address immediate capacity constraints and to build long-term fiscal sustainability. This will require sustained spending restraint. Hiking taxes to close Australia’s fiscal gap is neither a viable nor efficient policy strategy.

 

2.       Internationally competitive policy settings for taxation and climate policy that facilitate further investment and growth in industries in which Australia has a clear comparative advantage. Australia cannot take maximum advantage of this period of strong commodity demand without stable and globally competitive taxation and climate policy settings. In both cases, policies need to reflect the highly capitalintensive, globalised nature of the mining industry based on large upfront capital commitments, long-life assets, sophisticated technologies, and long lead times to profitability.

 

3.       A reinvigorated structural reform agenda to tackle capacity constraints and reverse a decade-long deterioration in Australia’s productivity performance. Improving the efficiency of energy networks, transport infrastructure, water markets, health and education services and business regulation is unfinished business from the “reform-era”. Skills shortages and costly, inefficient project approvals processes are critical impediments to minerals sector growth.

 

The Pre-Budget submission can be found at: www.minerals.org.au