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Australia’s boom ends leaving PM Abbott out of luck and maybe a job
Slump in mining revenues and a weakening economy could make Australia's Prime Minister Tony Abbott the first high-profile victim of the bursting commodities bubble
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Tony Abbott looks out of luck as commodities boom ends Photo: AFP/Getty Images
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By Andrew Critchlow, Commodities editor
1:53PM GMT 01 Feb 2015
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1 Comment Commodity prices hit a 12-year low last weekbut it’s not petro-dollar states like Saudi Arabia, or Venezuela, that will be the first major victims of the rout in recourses.
Australia’s centre-right government led by Prime Minister Tony Abbott is more likely to be the first administration to fall as declines in the price of almost every raw material upon which the so called “lucky” country’s economy depends plummet.
If Mr Abbott awarding the Duke of Edinburgh an Australian knighthood has outraged the average Aussie then the failure of his government to adequately provision for the end of the mining boom and the high standards of living that it subsidised has left them positively apoplectic with rage.
Australia, until recently heralded as an economic role model for industrialised nations by the International Monetary Fund, is in deep trouble and so is Mr Abbott and his hapless Treasurer Joe Hockey who are being blamed for not doing enough to react to the danger.
Mr Abbott’s increasing unpopularity was exposed last week when his uneasy Liberal-National coalition lost power in Queensland, a state where coal mining, gas fracking and cattle farming sit uneasily again a tourism industry which depends on maintaining the pristine wonder that is the Great Barrier Reef.
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Mining accounts for almost 10pc of the Australian economy and the country is entirely dependent on the sale of iron ore and coal to China, its largest trading partner. In December, the government revealed that it would miss its target of restricting the country’s deficit to $29.8bn Australian dollars (£15.4bn) and instead expected this figure to blowout to more than $40bn Australian dollars after tax revenue gained from mining slumped amid a 60pc decline in the value of iron ore over the last year.
Even Mr Abbott who had sworn to eliminate the country’s budget deficit when he won a landslide victory to oust Kevin Rudd in the country’s last general election in 2013 has warned Australians that their luck of riding the wave of a decade-long commodities trade boom may have run its course.
“We are at risk of succumbing to the European disease, we are at risk of becoming a second-rate nation living on its luck,’’ he said on a national radio interview late last month before his key political ally in Queensland Campbell Newman was thrown out of office in last week’s state election. As mining receipts plummet the government in Canberra is borrowing at a record rate of a $1bn Australian dollars per month in a bid to peg back its deficit.
The incredible thing about Abbott's economic strategy is that it hasn't fixed the budget, cut unemployment or eased cost of living pressures
— Stephen Koukoulas (@TheKouk) February 1, 2015
With commodity prices expected to fall at least by another 10pc this year and the Australian senate unwilling to compromise on the “austerity” cuts, which Mr Abbott needs to implement this figure could easily jump to $3bn Australian dollars within months. Pressure is now building on Glenn Stevens - the respected governor of the Reserve Bank of Australia (RBA) to take radical steps to protect the economy from going into a complete tailspin. — Stephen Koukoulas (@TheKouk) February 1, 2015
Mr Stevens is widely acknowledged to have been a steadying influence against the backdrop of political mismanagement, which has led Australia to squander the riches of its natural resource wealth over the last 20 years.
Case for Aussie rate cut is building. Iron ore back on lows. Aud depreciation halted, local confidence soft and CAPEX is on the decline.
— Warren Hogan (@anz_warrenhogan) January 28, 2015
Under Mr Steven’s term at the Aussie dollar climbed above parity with the US greenback and the country entirely avoided the global financial crisis. However, he is now under pressure to act at the central bank’s next policy meeting on February 3 after the country’s currency fell below the key 0.80 level against the US dollar last week for the first time in almost six years.— Warren Hogan (@anz_warrenhogan) January 28, 2015
Cutting rates, which have been held high throughout the mining boom, would act as a boost to growth but could also fuel some of the imbalances that have grown in the economy such as inflated real estate values that made the country almost unaffordable.
In the long-term Australia’s prospects are bright provided that China rediscovers its appetitie for commodities. However, the next year could see Mr Abbott become the first victim of the end of the mining boom.
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