Australian Treasurer Warns Country Not To Expect 'Rivers Of Gold'

by Mary Swire, Tax-News.com, Hong Kong

27 April 2011

Wayne Swan, the Australian Treasurer, has said that budget revenues for this financial year are tracking well below the level expected when the mid-year budget was updated last year. Commonwealth tax collections are down around AUD4.5bn, but the reality is that figure could be even higher by the time of the forthcoming May budget. He has also warned that the current mining boom will not necessarily lead to massive inflows into the country’s coffers.

“Mining boom mark II is gathering pace and it will mean extraordinary new levels of income flowing into Australia, building our national wealth and incomes. But it will also test the capacity of our economy and our workforce. It will benefit different Australians and businesses in different ways. And it will bring with it structural adjustments for our economy equal in magnitude to any we have seen before”.

He said that during mining boom mark I, revenues were boosted by a sharply rising terms of trade, rapid credit and consumption growth, rapid asset price growth, and solid corporate profitability across the board.

This time round, however, the hangover from the global financial crisis and the subdued recovery in household wealth means consumers are being much more cautious with their spending despite the strong jobs market and income growth. On top of this, tighter financial conditions are also impacting on growth prospects for businesses.

The strength of the exchange rate means sectors like tourism, education and manufacturing are all being affected by international competition more acutely than they were during Mining Boom Mark I. This has produced a divergence between the mining and non-mining sectors, the Treasurer said in his weekly economic notes.

“A stark example of this patchwork economy can be seen in earnings reports: profits in the mining sector surged 59% over 2010, while elsewhere they actually fell slightly. And because of the huge investments the mining companies are making, they will be entitled to very large tax deductions”.

He also said that because the current boom is starting at a time when Australia’s terms of trade are already at very high levels, as greater supplies of global commodities come on line, the country’s terms of trade will gradually fall.

“All up, this means we shouldn't expect to see a repeat of the rivers of gold that flowed into the government coffers in the last mining boom. The revenues will still be there, but we shouldn't expect to see a repeat of the massive AUD334bn upward revision to tax revenues that occurred between 2004 and 2007”, said Mr Swan.

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