The Rudd Government must not waste this new boom: Kohler

Suddenly, just a year after being in a funk about the GFC, Australia’s leadership must deal with amazing prosperity.

The turnaround in this country’s fortunes is both exhilarating and challenging: in one budget cycle we have gone from trying rescue the place from recession to dealing with an incredible boom.

Meanwhile, last night the US National Bureau of Economic Research surprisingly declared that the American recession is not over, and in any case, whether it’s over or not, America’s fiscal task remains mountainous. Europe remains consumed by rescue efforts. Japan’s debt has just been downgraded.

In Australia, according to the ABS, there is now $133 billion worth of construction in the pipeline – the greatest investment boom in history. With the massive Gorgon LNG project in WA now underway 30 years after it was discovered, liquefied gas has joined iron and coal as the third pillar of the new resources boom.

Prices for iron and coal seem likely to double this year. The number of coal ships queuing off Newcastle is back to more than 50. Sales contracts for Queensland coal seam gas are now being signed. The oil price, now back in the mid-80s, seems destined to keep rising, dragging LNG with it.

Economists at Royal Bank of Scotland estimate that the boost to national income from the return of the resources boom will be 3% of GDP. The budget windfall for the Federal Government will be about 1% of GDP, or more than $100 billion.

From one budget to the next, therefore, the Rudd government will go from worrying about how to control and finance the deficit to thinking about what to do with the excess cash. Last year’s longer-term projections had the budget back in surplus in 2015-16; the forward estimates in next month’s budget are now likely to show a surplus in 2013-14.

So, in two announcements over the next few weeks – the release of the Henry Tax Review and the Federal Budget – the government must switch from recession-mode to prosperity planning.

It’s a great opportunity for Kevin Rudd to set Australia up for the future, something John Howard ducked during his resources boom in favour of vote-buying middle-class welfare.

The signs so far are good. The health reform plan being negotiated with the states at the moment should help fund the blow-out in health spending that’s coming. The budget windfall can help push that through.

Hopes are high that Ken Henry’s team has produced a good set of reforms to the tax system. The windfall can help sweeten that pill as well.

With Australia’s population forecast to hit 36 million in 2050, national infrastructure is an urgent priority.

RBA board member Warwick McKibbin suggests that Australia follows Norway’s lead and sets up sovereign wealth fund that goes beyond the narrow ambition of the Future Fund to finance public service pensions. Norway’s four million souls now own a fund worth more than $US400 billion, throwing off a big contribution to national income every year.

There is no reason these four priorities – health, infrastructure, tax reform and national saving – can’t be financed out of the new resources boom.

But to do it will require the sort of short-term electoral confidence and long-term vision that John Howard never possessed.


This article first appeared on Business Spectator


Notify of
Inline Feedbacks
View all comments
SmartCompany Plus

Sign in

To connect a sign in method the email must match the one on your SmartCompany Plus account.
Or use your email
Forgot your password?

Want some assistance?

Contact us on: or call the hotline: +61 (03) 8623 9900.