A Lowy Institute Paper, written by economist Dr John Edwards, published by Penguin Australia.

As the Coalition secures support from the Palmer United Party to sound the death knell for the mining tax, many will turn their minds to whether the mining boom is over and how Australians can maximise the benefit from the resources industry. Economist John Edwards explains in his report for the Lowy Institute, Beyond the Boom, that the average Australian’s quality of life did not markedly increase during the height of the mining boom, nor did we lazily squander these benefits.

In his analysis, Edwards systematically and meticulously works through the real impact on disposable income from the height of the mining boom, unpacking claims by other economists that were Australia’s terms of trade to return to 2003 levels then Australia would suffer ‘the largest negative macro shock since the 1930s depression’. Edwards concludes that terms of trade analyses are inherently flawed because they’re deflated to indexed import prices and reliant on the assumption that majority foreign owners will translate their profits into higher consumption of imports. The idea that Australians fecklessly wasted the boom is equally flawed, Edwards argues, because savings, investments physical assets and human capital and workforce participation all increased during the peak boom time while there was frugal moderation in consumption and housing spending.

And as for the government? Edwards uses the structural budget balance (SBB), a figure now routinely calculated by Treasury and Parliamentary Budget Office to show that recent budget deficits were largely the result of discretionary forces not temporary market forces. Interestingly, Edwards stops short of blaming the Howard government for these discretionary forces, or personal income tax cuts, because there is no reason to believe that retaining the revenue would have had a positive effect on the Australian Dollar due to the corresponding increase in personal savings that would have most likely occurred had they not been granted.

Fundamentally, Edwards argues that Australia’s decades of economic prosperity were no accident and that the way to steadily improve Australia’s output and multifactor productivity is through the services sector, which already accounts for 70 per cent of GDP and has produced most of Australia’s economic growth for decades. He says the mining boom will change in nature to focus on products even less labour-intensive than before driven by structural changes to China’s growth. The conclusion that Australia has pivoted quickly from strength to strength in changing economic climes and hasn’t haplessly stumbled into success is controversial only in today’s political cycle where there are constant calls for sweeping reforms.

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