Interpac Business and Migration Solutions Melbourne Australia

(Aug.31)

Australia must prepare for the end of the mining boom by investing in infrastructure that will aid the non-mining sector, an economic forecast group says.

The dollar's strength, bolstered by what is one of the longest commodities booms in Australian history, will leave the economy vulnerable once it ends, by crippling the non-mining sectors of the economy, such as tourism, manufacturing, and education services, said BIS Shrapnel in its Long Term Forecast 2011-26.

“We need to prepare the economy for the end of the boom,” said BIS Shrapnel chief economist Frank Gelber.

“We need to put our minds to doing the things that will soften the blow when the minerals boom ends, now, while we still can rather than just blowing the dough."

The Aussie has been trading above parity with the US dollar nearly without interruption since March, well above its long-term historical value of about 72 US cents.

The currency's rise has been underpinned by the record levels of exports of iron ore, coal and other minerals to Asia.

BIS Shrapnel estimates Australian exports are competitive when the Aussie is worth around 75 to 80 US cents, well below the $US1.06 it was trading at this morning.

Jobs lost

The dollar's rise has undercut the competitive strength of Australia's exports with steelmakers such as BlueScope Steel and OneSteel announcing layoffs this month. Bricks and mortar retailers have also seen business suffer as more consumers shop online overseas.

The prospect of the stronger dollar for a longer period will continue to reshape the economy, said Dr Gelber, making the changes "irreversible."

"When you lose the industry you can't just put it back again," he said.

Mr Gelber believes Australia should invest in "hard infrastructure" such as the national broadband network and "soft infrastructure", such as legal reforms, innovation at the Australian Bureau of Statistics and improving conditions for businesses.

The impact of the strong dollar on the economy has been noted in other research with a HSBC report this month highlighting Australia's "resources curse," which concludes the mining boom can lead "to slower growth in productivity" and higher inflation risks.

The Reserve Bank has also urged further investment in the economy while national income remains high because of the commodities boom.

Because of the disparity between growth in sectors, Mr Gelber backed the idea of a resources tax to capture some of the wealth to put into future projects.

“The new taxes won't hurt the economy - a mining tax will do little to discourage investment in this buoyant period, and the carbon tax is a bit player,” Dr Gelber said.

“It's the strength of the dollar that is doing the damage to domestically produced tradeable goods and services.”

Mr Gelber could put no time-frame on the end of the mining boom which he said had run longer than any in the last century.

"This one (mining boom) is a huge one already. We've had lots of commodities booms in Australia all of which by these standards have been short. We're already six or seven years into this one."