Aussies set to cop $75k income hit as mining gravy train ends and living standards plateau: Westpac
Analysis from Westpac senior economist Pat Bustamante has found weak net export growth and stalled mining investment is set to cost the average Australian $75,000 of income over the next decade.
'The mining industry accounts for less than 2 per cent of total employment or hours worked, and less than 15 percent of total output, across the Australian economy,' Mr Bustamante said.
'Yet, in the two decades to 2020, the mining industry delivered almost 55 per cent of the growth in our living standards.'
Mr Bustamante said the contribution mining made to Australia's living standards was predominantly driven by higher export prices for key commodities, like iron ore, and an investment boom to bring massive projects online.
'Indeed, a large reason why the Federal government and the mining states have been able to provide cost of living support, and increase the scope of public services, without becoming heavily indebted is because of the windfalls provided by the mining industry,' he said.
But the Westpac economist said mining investment has 'stalled' post the Global Financial Crisis of 2008 and strong commodity price growth was unlikely to continue.
'The economic landscape going forward will be very different. The dividend from higher commodity prices is likely to be a thing of the past as key commodity export prices ease,' Mr Bustamante.
'We have iron ore falling from around US$103 per tonne today to US$84/t over the March quarter 2027, for example.'
Australia derives the bulk of its mineral wealth from iron ore, with more than $100 billion of export income produced each year.
Local and international banks have been bearish about the long-term outlook of iron ore as China's steel demand peaks and new supply sources begin to emerge in Africa.
Mr Bustamante said Australian living standards are projected to move sideways between 2022 and 2030, which would be 'the longest period (of no growth) on record'.
'Compared to the scenario where per capita living standards grows at the 40-year average rate of around 2.0 per a year, income will be around $75,000 lower per capita over the next decade in today's dollars compared to the status quo — that's around $300,000 for a household of four,' he said.
'The good news is that it does not have to be this way. Faster productivity growth can be an offset. Opportunities are emerging and we need to be well equipped to exploit these.'
Mr Bustamante pointed to artificial intelligence as a potential opportunity, but implied more would need to be done to bridge the gap.
'The International Monetary Fund recently estimated that in nations that are well positioned to benefit from AI, its widespread adoption could boost productivity growth by 0.9 to 1.5 percentage points a year.'
The Westpac research comes as Federal Treasurer Jim Chalmers prepares to host a three-day policy summit next month centred around productivity.
The Business of Council of Australia is leading a cohort of 28 businesses and industry groups at the economic roundtable.
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