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

• David Richardson, Richard Denniss
• The Australia Institute

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"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.

This paper seeks to describe 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.