Issue: 549
Sent: 30-09-2014 09:18:02
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Australia's Miners Want More RespectEmail Marketing For Planners
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Australia's Miners Want More Respect

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John Robertson

Australia's mining industry leaders bemoaned how poorly understood their industry had become at the inaugural International Mining and Resources Conference in Melbourne this week.

Under the auspices of the Victorian government, the conference brought suppliers, operators, policymakers and investors together in technical, policy and investment discussion streams. Officials from several developing mining economies also attended as well as Australian state and territory governments.

The fact that the industry was being offered a chance to showcase itself in one of Australia's major metropolitan cities with a relatively low dependence on mining activity could have just as easily been used to illustrate how highly the industry was regarded.

The lament about its standing is not unusual for an industry which has always felt isolated from the mainstream Australian population. The scale of technological innovation, sophisticated research and community building fostered by the modern industry probably does go largely unsung within the broader community. But there is hardly ever an industry that feels fully appreciated. The clearest evidence is a thriving public relations industry in Australia.

One source of perceived bias is the tendency for the industry to be singled out for special attention when its profitability has appeared out of kilter with the rest of the economy.

While there is some element of 'soak the rich' socialism attaching to these attempts, the industry can blame itself for some of the optimism which encourages these thoughts among policymakers. When cycles are running strongly, the industry is loathed to concede that its fortunes will deteriorate dramatically in the not too distant future. Cycle denial does not help its cause.

The Australian industry is not in an especially unique position. In other countries, too, people have a more intuitive grasp of retailing, banking or IT, for example, than they have about miners and what they do. And the industry does suffer from a prior history of bad behaviour whose legacy is hard to shake.

Some of the current complaints by the industry in Australia arise from a steady loss of competitiveness through the most recent cycle. Some in the industry are inclined to sheet this home to the government as a policy failure.

While there is scope at the margin for the government to influence employment terms and conditions, for example, it is most often simply a bystander watching companies set their own operating outcomes. There is some irony in company executives bristling at any government attempt to cap their salaries but inviting the government to help control the incomes of their employees.

Exorbitant wages and expensive fly-in fly-out supply arrangements have not been forced on companies by governments. Generally speaking, these have been preferred by the industry to the alternative of having to set up and administer townships. The arrangements seemed like a good idea at the time. Unfortunately, short term operational objectives dominated an understanding of the broader economic consequences.

By having to bid for labour on the open market rather than work with a locally sourced pool, miners have contributed to generalised wage inflation within the industry. In failing to build a sustainable business model, the industry has created a longer term burden for itself.

Recently, the industry has felt additionally pressured because of the end of the so-called mining boom. Having once reveled in the idea of a super cycle, its abrupt halt has once again emphasised the unsustainable nature of the industry's contribution to national well-being. The end of the boom also came on the heels of some anxiety over the spread of the benefits.

The Reserve Bank recently came to the belated rescue of the industry's reputation with some considered analysis of what the impact of the industry might have been during the mining boom. In short, the RBA seemed to confirm that the industry had made a meaningful contribution to the state of the economy and the welfare of individual Australians.

Economists at the bank used statistical modeling techniques to gauge what might have happened had there not been a mining boom. Macro simulations such as these are always fraught with difficulty insofar as they are asking what might have happened knowing that the conclusion can never be verified or tested.

The results should not be regarded as definitive. They are a considered view by a group with considerable expertise in carrying out this type of work. It would be unsurprising, however, if another group of researchers with a different model came up with a different conclusion in due course. That has happened before with modelling of this sort.

The RBA analysis found that real per capita household disposable income increased by 13% and that real wages were 6% higher in 2013 as a result of the buoyant cyclical conditions. The unemployment rate was also lower than it otherwise would have been. There were costs and, even though parts of manufacturing industry benefitted from mining development, overall manufacturing output was lower after the boom, according to the bank's work.

The supposed wage outcomes are of interest against the backdrop of the recent removal of the mining tax. Critics of the mining tax repeal cited the cost of the accompanying delay in raising the superannuation guarantee levy as a lost benefit.

The RBA did not explicitly address the impact on superannuation but its analysis does imply that one of the ongoing benefits of the boom is a significantly higher superannuation base.

A logical extension of the RBA numbers is that wage earners would today have some $60 billion less in superannuation accumulations without the boom. A 6% rate of return would leave them with nearly $350 billion more in pension assets in 30 years than would have been possible without the recent mining cycle. Over this future period, in the normal course, several more cycles of similar force could occur further enhancing the value of the saving pool.

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