The role of mining in the Australian economy

Australia is a resource-dependent economy. The performance of the mining sector affects all Australians either directly, for example, through employment and share ownership, or indirectly, through capital investment and tax revenue. Australia is a global leader in the extraction and export of a range of key minerals, and its relationship with the growing Chinese economy places it in a favourable position for future economic growth. However, the Australian mining industry faces a number of challenges as it seeks to realise the potential which the country's endowment of mineral wealth offers; these challenges range from economic factors such as commodity prices and terms of trade, resource availability, the determination of the economic rent which the sector earns and its subsequent redistribution, to environmental factors including government policy on carbon pricing. How these challenges are tackled will affect the Australian mining industry's competitive position in the global economy. The performance of the mining sector affects the performance of other sectors of the economy through its influence on exchange rates and its demand for scarce resources within the economy; these influences form part of the debate on Australia's so-called 'two-speed economy' or 'Dutch Disease'. The management of Australian economic policy, whether it is the government managing fiscal policy or the Reserve Bank of Australia (RBA) managing monetary policy, must be grounded on a deep understanding of the current and historical performance of the Australian mining industry and assumptions about future prospects and their key drivers. The second section of this chapter will be a descriptive analysis which examines the direct impact of the mining sector on the Australian economy via its effect on such variables as exports, the current account deficit, investment, the exchange rate and the terms of trade. It also considers the role of the mining industry during the Global Financial Crisis (GFC). The third section presents a simple econometric model of the Australian economy which takes account of the indirect as well as the direct effects of mining in the Australian economy. It illustrates the ubiquity of commodity prices in driving the Australian economy. The fourth section discusses the proposed Mineral Resource Tax and its possible effects on the mining industry.