News, opinions and activism regarding our energy future, and local solutions for Perth, Western Australia.

Monday, May 15, 2006

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.


Blogger Chaos said...

Always nice to get a perspective from a different country. Chaos has noted Australia with interest, since they apparently derive much revenue from selling their natural resources to China, and were featured in Diamond's Collapse. Chaos welcomes you to the world of bloggery!

17/5/06 00:13

Blogger Big Gav said...

The SMH also looked at the minerals boom today.

A future fund or similar would be nice, but that sort of vision is in short supply.

I can't see mineral prices staying high once we do get on a Hubbert downslope (but I must say I don't think we're there yet) - the opposite in fact - as countries are forced to adopt strategies of conservation, efficiency, recycling and sustainability in general the market for vast quantities of ore will disappear rapidly...

17/5/06 11:00

Blogger mike said...

Hmmm... thats a very good point gav. Thinking about it our current market for massive quantities of low grade ore is dependent on cheap transportation, once transportation is no longer cheap the whole equation changes. I did read somewhere however that the shipping cost of ores is only a tiny proportion of their final cost, this topic is definitely one that needs some further research as it will affect Australia greatly.

19/5/06 00:32

Blogger Big Gav said...

Its not just the shipping cost - refining / smelting ore is also energy intensive - as is manufacturing / constructing stuff with the metals that are finally produced.

If you are forced, by reduced energy availability / high energy prices, to transition economies to a more sustainable basis (where conservation and recycling becomes a major focus), then demand for vast amounts of raw materials drops very rapidly.

So I see any post energy peak period as a period of vastly reduced demand for many materials, particularly bulk ores like iron ore....

19/5/06 09:20


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