Don't be misled by last week's better-than-expected figures for
employment in February. If you peer through the statistical haze you see
the problem is the reverse: employment is weaker than you'd expect.
Follow that through and it takes you to - of all things - the mining
tax.
The job figures were better than expected for two quite silly reasons. First,
because economists are hopeless at predicting month-to-month changes in
employment and unemployment. Their guesses are wrong most months.
Second,
because it suits the vested interests of the financial markets and the
media to ignore the Bureau of Statistics' advice and focus on the
volatile seasonally adjusted estimates rather than the more reliable
trend estimates.The markets like volatility because it makes for better betting; the media like it because it makes for sexier stories.
If
we put understanding ahead of thrills and spills and use the trend
estimates, they show total employment grew by a paltry 58,000 over the
year to February, an increase of just 0.5 per cent. Worse, within that,
full-time employment actually fell by 24,000.
This doesn't fit
with the news we got the previous week that real gross domestic product
grew by a not-so-bad 2.8 per cent over the year to December. (Comparing
employment to February with economic growth to December isn't a problem
because employment responds with a lag.)
Economic growth of 2.8
per cent is only a bit shy of our medium-term trend growth rate of 3 per
cent, which Treasury estimates is consistent with annual employment
growth of 1.5 per cent, or 170,000 extra jobs.
So the real question we should be asking is why employment has been weaker than you'd expect.
The
answer isn't hard to find: it's because "net exports" (exports minus
imports) account for 2.4 percentage points of the overall growth of 2.8
per cent. And most of that is explained by the resources boom's shift
from its investment phase to its production and export phase.
On
one hand, construction workers are losing jobs as the building of new
mines and natural gas facilities winds up while, on the other, few extra
jobs are required to permit a huge increase in mining production. All
this is fine for growth in production (real GDP), but bad for growth in
employment.
Fact is, mining's so hugely capital-intensive that
though it now accounts for an amazing 10 per cent of GDP, it still
accounts for a mere 2.4 per cent of total employment.
Now, I've
never had any sympathy for those who argue an expansion in mining isn't
worth having because it generates so few extra jobs. This reveals a
fundamental misunderstanding of how economies work (via the "circular
flow of income").
The size of an industry's economic contribution
is determined not by the number of jobs it creates directly, but by the
amount of income it generates. And even with falling coal and iron ore
prices, our miners are still highly profitable because their efficiency,
plus the quality and accessibility of our mineral deposits, mean their
marginal cost of production is far lower than that faced by miners in
most other countries.
In other words, our miners earn huge economic rents.
What
the mining bashers miss is that when all the income generated by an
industry is spent, it generates jobs throughout the economy. This
includes the income the industry pays in tax, which generates jobs when
it's spent by governments.
In the case of mining, however, there's
a weakness in this argument. For the income earned by an industry to
generate jobs in Australia, it has to be spent in Australia. And our
mining industry is about 80 per cent foreign-owned.
Got the
message yet? For our economy and our workers to benefit adequately from
the exploitation of our natural endowment by mainly foreign companies,
our government has to ensure it gets a fair whack of the economic rents
those foreigners generate.
This, of course, is the justification
for the minerals resource rent tax. And the fact that, so far, the tax
has raised tiny amounts of revenue doesn't mean mining is no longer
highly profitable, nor that the tax isn't worth bothering with.
Because
Labor so foolishly allowed the big three foreign miners to redesign the
tax, they chose to get all their deductions up-front. Once those
deductions are used up, the tax will become a big earner. Long before
then, however, Tony Abbott will have rewarded the Liberal Party's
foreign donors by abolishing the tax.
This will be an act of major fiscal vandalism, of little or no benefit to the economy and at great cost to job creation.
