"The truth is, with the ending of the decade-long mining boom, we face new economic challenges."
Kevin Rudd on Sunday, August 11, 2013 in the first leaders' debate
Is the mining boom really over or taking on a different hue?
The mining boom has ended or, to be less definitive, is ending. The message has been repeated often, sometimes connected to China's slowing demand for resources, sometimes not. It's become accepted wisdom or close to it.
But is it right? Opposition leader Tony Abbott questioned this when he emphasised during the August 11 election debate the "if" in his comment: "If the mining boom is over".
Prime Minister Rudd has often repeated the line about the end of the boom, sometimes saying the end is in sight and sometimes calling it the end of the mining investment boom.
Earlier in August, Rudd said at a press conference: "The truth is that we face new economic challenges with the end of the mining boom and that means that we have got to ensure in the future we have a new way of not having all our eggs in one basket, a new way of diversifying the economy, broadening the economic base, building new industries and driving that through a new national competitiveness agenda."
During the debate, Rudd said: "The truth is, with the ending of the decade-long mining boom, we face new economic challenges."
Abbott replied: "I say if the mining boom is over, at least in part, it's because Mr Rudd's government has killed it with things like the Carbon Tax, with things like the Mining Tax, abolishing the Australian Building and Construction Commission, added green tape on development approvals."
The advantage to Rudd saying the boom is ending is that that he positions an ALP government as the means to solve that problem. It is his way of changing the narrative, and opening up a platform for Labor to talk about how it can manage the next phase of Australia's economic development. Fair enough.
We are certainly refraining from making a call on whether Australia needs to diversify its economic base in this fact-check.
But PolitiFact thought we should fact-check the health of the mining boom. Listening to Rudd, it's hard not to walk away with the impression that the boom has ended or, at very least, about to end any day now.
Everyone accepts there has been a mining boom, fueled by global demand (a slice of it from China) and by rising commodity prices.
Investment spending in mining has grown over a decade to eight per cent of GDP from under 2 per cent in response to steep rises in commodity prices (see chart on prices). The investment was needed to build the infrastructure to dig the ore out of the ground and ship it. Now, as the graph also shows, the prices have come off.
But is this the boom's end or something else?
Reserve Bank of Australia (RBA) governor Glenn Stevens thinks the latter. He said on July 30, 2013: "It is now well understood that the ‘mining boom’ is shifting gear, and that we are entering a new phase."
That phase will see lower capital investment in mining but actually more ore being shipped. Stevens again: "Let's be clear that Australians will continue to benefit from the higher level of resources output for a very long time."
Stevens says shipments of iron ore are rising about 15 per cent per year and will probably increase further and then stay high. That hardly supports the contention that either boom is over or about to end.
Natural gas will start increasing strongly in 2015 and will probably have several years of very strong growth and then remain high for a few decades.
Real GDP will get a lift as a result of all this activity. National income will also get a lift from the higher volumes but that money stream is likely to be offset in part by lower prices.
And there certainly will be fewer jobs: fewer people are needed to ship the ore than to build the infrastructure. The economic multiplier impact of mining — of how one mining job contributes to the wellbeing of many others sectors — is therefore on the wane.
The value of new resources projects has declined and is forecast to fall hard. In the six months from October 2012 to April 2013, the value of projects at the 'committed stage' of development decreased by $799 million, says the Bureau of Resources and Energy Economics.
"In the past twelve months around $150 billion of projects have either been delayed, cancelled or have had re-assessed development plans in the past twelve months," the bureau says in its April 2013 report on major resources and energy projects.
Westpac's latest quarterly report, Australia's Investment Project Pipeline, released August 14 says: "The value of definite mining projects declined, down 2.3 per cent to $252 billion. This was the first quarterly decline since 2010, and follows a run of ten consecutive gains."
The report said: "The outlook for resources investment has been undermined by rising costs, lower commodity prices and a softer outlook for China. The report suggests this points to a near-term peak in resources construction activity."
But again is this sufficient evidence of the actual end of the boom?
The picture again is mixed. The falling value of the Australian dollar against the US dollar, for instance, helps when a lot of contracts are written in US dollars. You get more Australian dollars for the same number of US dollars.
This helps offset falling prices for commodities.
The reserve bank in its index of commodity prices for July 2013: "The largest contributors to the decline in July were falls in the prices of coal and gold, which were partly offset by increases in the prices of iron ore and crude oil," the reserve bank says.
In Western Australia, the boom mining state, isn’t as busy as it once was. The level of difficulty in booking a hotel room has moved from near impossible to possible, sometimes.
In the state budget brought down August 8, 2013, slowing employment growth is expected to pull down revenue rises from payroll tax but resources exports are still the main driver of the economy.
The WA government says the peak of mining investment came earlier than thought due to a combination of weaker sentiment about China’s growth outlook, volatile commodity prices and the prospect of lower commodity prices.
"Western Australia’s economy from 2013-14 is forecast to undergo a period of transition from construction-based activity to growth driven by increasing export volumes."
But the state is still getting more and more revenue from mining despite lower prices because more iron ore is being dug up and the Australian dollar is low again the US dollar.
Total mining revenue to the state is budgeted to rise to $6.9 billion in 2013-14 from $5.6 billion in 2012-13.
Iron ore continues to be the largest source of royalty income for Western Australia, making up to 90 per cent of all royalties and almost 19 per cent of the state’s total revenue.
And nationally, exports are forecast to rise by about 11 per cent, about $20 billion, to $197 billion in 2013-14, according to the Bureau of Resources and Energy Economics (BREE).
"While a depreciating dollar increases the Australian dollar value of resources and energy exports denominated in US dollars, this was more than offset in 2013 by weakening commodity prices," says Quentin Grafton, BREE's Executive Director and Chief Economist.
The Pre-Election Economic and Fiscal Outlook 2013 report, released by Treasury and the Finance Department on August 13, says: "The next stage of the resources boom is upon us, as the construction of major projects is completed and the projects move into the production phase."
Industry body the Minerals Council of Australia says terms such as "boom" and "bust" fail to capture the enduring nature of mining industry growth.
"While Australia is at or near the peak in the mining investment cycle, there remains a significant opportunity for future investment in projects in coming years," the council said in a written statement.
"Meanwhile, the export expansion phase arising from past investment is still ramping up. Record levels of mining investment in recent years are expected to contribute to robust growth in export volumes over the medium term.
"While the volume of Australia’s resource exports increased at an annual rate of 3.5 to 4 per cent over the course of the terms of trade boom, it is expected to increase at a faster pace in coming years as a result of the large volume of investment. On official forecasts, this volume growth will support further growth in export revenues."
There's the rub: the Reserve Bank, Treasury and BREE all emphasise the three phases of the mining boom: the boom in the terms of trade; the surge in resource investment; and the subsequent growth in production and export of resources.
Treasury secretary Martin Parkinson says the mining boom has entered the third stage of high exports volumes and Australia is unlikely to see a bust.
"Rumours of the death of the mining sector have been greatly exaggerated," he said on October 5, 2012. "Instead of the boom-and-bust cycle, what we will see ultimately is mining becoming a much larger share of a reshaped economy.
"The mining sector is expected to rise from 5 per cent of gross value added in the early 2000s to in the order of 10-12 per cent in the decades to come."
On whether the ALP government is partly responsible for "killing" the mining boom, resource exports are growing and far from intensive care. Launching a murder investigation into who held the knife is premature.
And it should be noted, in passing, that the Liberals can hardly criticise the government for introducing a mining tax that delivers little money -- and then say the same tax helped kill off the industry.
The mining boom is far from dead.
The statistics, expert analysis and government forecasts show the mining boom has moved from a capital investment phase when the infrastructure was built to a production phase with increasing volumes of ore shipped.
The reserve bank still calls it a boom, the third stage of such an event, as the cash river continues to swell with more and more ore.
Yes, the value of commodities is falling but this is at least partly offset by the fall in the dollar against the US dollar.
Treasury still talks about a boom as well.
The value of Australia’s resources exports continues to grow strongly and the reserve bank expects this to continue for several years.
Rudd statements vary from the end of the China-led boom, to the end of the mining investment boom to the end of the mining boom. The more precise statement is that the mining investment phase of the boom has ended.
What we're fact-checking here is whether the mining boom is ending. It's not ending, but it is changing and it will deliver fewer jobs, less spectacular prices but more revenue.
There is therefore some accuracy in the statement, but it leaves out important details.
We rate this as Half True.
Published: Thursday, August 15, 2013 at 7:39 p.m.
Rudd VS Abbott, Election Debate, August 11, 2013
WA State Budget 2013-14, August 8, 2013
The Reserve Bank Index of Commodites
Economic Policy after the Booms, Glenn Stevens, July 30, 2013
Email, Minerals Council of Australia, August 13
Prime Minister Kevin Rudd press conference, August 6, 2013
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PolitiFact Australia wants to help keep our politicians honest. We fact-check the accuracy of claims by elected officials and other influential people in the Australian political debate.
We research and rate statements with our Truth-O-Meter. Its goal is to reflect the relative accuracy of a statement. The meter has six ratings, in decreasing level of truthfulness:
TRUE - The statement is accurate and there's nothing significant missing.
MOSTLY TRUE - The statement is accurate but needs clarification or additional information.
HALF TRUE - The statement is partially accurate but leaves out important details or takes things out of context.
MOSTLY FALSE - The statement contains an element of truth but ignores critical facts that would give a different impression.
FALSE - The statement is not accurate.
PANTS ON FIRE - The statement is not accurate and makes a ridiculous claim.