Opportunity Knox, Nobody Home

I see according to recent article in The Australian due to soaring demand in China and India and high commodity prices Australia is set for a long resources boom. According to "treasury papers" this is justification for electorally popular taxcuts:

Treasury suggests the phenomenon could boost Australian living standards.

And it raises the prospect that a prolonged world commodity boom could see future tax cuts and handouts as governments spend their bigger-than-expected surpluses.

The Government only feels it necessary to run big surpluses in good times to cope with downturns in periods of economic stagnation.

A prolonged mining boom would reduce the need for Treasury to retain big surpluses, allowing it instead to focus on items such as tax cuts.

To me, this is very short sighted. The prospect of the end of the age of cheap oil means that we could be on the cusp of the longest economic downturn in history. Those funds from windfall resource taxes should be invested in the future of the whole nation, rather than used as an electoral bribe.

Why not spend the money on something visionary, like a program to change Australia to a renewable energy economy, or at least create a National Fund like the Norwegians have from their nation's resource rents. But vision is not something I have come to expect from any recent politicians.

The article also refers to Australia's terms of trade:

The current budget is based on forecasts that Australia's terms of trade - export prices compared to import prices - will stay close to current levels after soaring by 30 per cent over the past four years to a record level last year.

Considering my previous post about Australia running out of oil and having a $20 billion trade deficit on oil, and my belief that globally we are well and truly on the downside of the Hubbert Peak, Australia's terms of trade could be in for a decline. However this will largely depend on how energy cost increases (which Australia will be importing in the future) feed through to commodity prices (metals and ores Australia exports). Subject for a future blog, maybe.