Australia probably will create economic history later this year when we are likely to record our first current account surplus since 1975, all thanks to our record-breaking resource sector.
A few years ago some were writing obituaries for our resources. A mining downturn was in full swing and the popular comment was that Australia needed to focus on the “new economy”, with the implicit conclusion that mining was part of the “old economy”.
Resources have smashed more records than Ian Thorpe in the years since. This month’s trade data reveals Australia’s top three exports (iron ore, coal and gas) now exceed the value of all other Australian goods exports combined. In 2016, at the bottom of the downturn, our resource exports slumped to $160 billion. In just three years they have bounced back to more than $275 billion. Resources now count for three-quarters of Australia’s goods exports.
That growth is what will likely deliver Australia’s first current account surplus since the 1970s. The current account measures all of the year-on-year flows of money into and out of the country. That includes money we get from selling goods overseas and money we use to buy things from overseas.
It also includes any dividends or interest payments we must make to those who have invested in Australia in the past, or interest or dividends that come back from investments Australians have overseas. There is nothing per se wrong with running a current account deficit because growing countries such as Australia have good reason to attract investment from overseas. These investments help create more wealth across time, even if it means we make regular distribution of the profits back to those overseas investors.
Nonetheless, there are good things about having a surplus because that increases the purchasing power of all Australians. We don’t make cars, whitegoods or even much of our shoes or clothing any more. All of these things come to us in big boats and we can afford to pay for these things only because we send big boats in the other direction with black rocks, red rocks and frozen gas.
A current account surplus, all other things being equal, increases demand for Australian dollars and therefore increases the value of the dollar. That means every time you go Amazon shopping things are a little cheaper than they otherwise would be.
Notwithstanding the record-breaking run of Australian resources, we cannot fall into the trap of thinking that success is automatic. In some senses, a mine works like a savings account. You put in a huge amount of capital upfront, then you can make withdrawals for many years to come. Of course, just like a bank account, unless it is replenished the balance will start to decline and, eventually, the ATM will read “insufficient funds”.
In the next few years we will stop making year-on-year records in resource exports without further investment in new mines. We will then be drawing down on the legacy of past investments. Now is the time to seek to rekindle appetite for investment in our resource industry. The fundamental conditions for investment remain strong. Iron ore, coal and gold prices are at high levels and attractive candidates for further investment. Some lesser-known minerals, such as lithium, nickel, cobalt and rare earths, are increasing in demand given the rise of new technologies such as renewable energy and electric cars.
However, the regulatory conditions are perhaps not as strong as they were a decade ago. The Adani mine saga is the high-profile example — it should not take 10 years to get a yes or no — but Adani is reflective of a broader concerning trend. The Queensland government has fallen to 49th of 83 in the respected Fraser Institute’s world rankings of uncertainty for environmental regulation in mining. Queensland now ranks below Russia, Congo and Papua New Guinea on this score.
The Victorian government has put an inexplicable stop to the conventional extraction of gas — something that has occurred in Australia safely for more than 100 years. Unnecessary red tape is the greatest threat to the continuing strength of our resources industry.
That is why the federal government has established a Productivity Commission inquiry to provide greater detail on how long it takes for mine approvals across Australia and overseas. The commission can then draw on this information to highlight best practices to avoid unnecessary delays.
This is not about reducing our environmental protections. They are rightly robust and will remain so, but many of the hurdles facing the creation of investment and jobs do nothing to protect the environment. What we should do is reduce unnecessary barriers to investment. That is the best way we can hope to continue to smash economic records.
Matthew Canavan is resources and Northern Australia minister.