Economy

Oct 12, 2012

RBA now controls the economics of next year’s federal election

The economic environment in which next year's federal election will be fought will be affected in large part by how the RBA responds to a worsening international situation.

Bernard Keane — Politics editor

Bernard Keane

Politics editor

While all of us — gallery hack, blogger and Twitterati alike — were engrossed in politics within the House of Representatives this week, events of greater significance for the electoral chances of the government were unfolding elsewhere.

29 comments

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29 thoughts on “RBA now controls the economics of next year’s federal election

  1. Hunt Ian

    Good to see some good reporting on what the RBA has to face over the next year.

  2. David Hand

    It’s good to finally see a comment in this organ of the influence of the mining sector on the national economy though I guess it had to wait till the trend is down and an excuse is needed to explain why the economic downturn is not Swan’s fault.

    For too long I’ve been assaulted by Crikey’s gleeful endorsement of Swan’s attacks on “greedy miners and billionaires”, a “tiny part of Australia’s economy” etc etc.

    Yep, the boom is over and we will really see how the multiplier effect caused the mining sector to influence jobs right across the economy.

    But Swan is hell bent on a surplus. Bernard, any ideas where he will attack the prosperity of ordinary Australians by contracting the economy while he should be stimulating it? Or am I in for months of defence of an indefencibly useless, shallow, politically crude and incopetent Treasurer?

    Thev RBA is not only on its own. The Treasurer is working against it.

  3. Hamis Hill

    Why worry, Australians are officiall-y the wealthiest people on Earth, on the back of an unburst housing bubble of the highest house prices on Earth.
    All care of escaping the GFC caused by bursting housing bubbles all over the world.
    But don’t be concerned, Abbott and co will remedy this defect by following his little Queensland mate into a slash and burn exercise at the federal level, bursting the housing bubble and putting us all back in our place.
    Now if the RBA wants to avoid all that it had better start leaning on its business partners to, Alan Jones style, start withdrawing their cretinous support for the imbecile conservatives.
    Otherwise both they and the economy will be dying of shame.
    Pandering to middle class aspirational idiocy, all care of the credit card and mortgage orgy, is what has brought the nation to this brink of economic disaster.
    The RBA knows this and has known all this for some time, when will the rest of the economy wake up to the absolute economic bankruptcy of the Howard Hangovers?

  4. Jimmy

    This line is the big danger for thsi country”It also completed the step-by-step change in its thinking on austerity that has been underway for months, and admitted what most Europeans, and particularly the millions without jobs, could have told them — slashing government spending in the name of reining in debt dramatically slows economic growth, making the task you’re trying to achieve more difficult and inflicting serious economic and social damage along the way” given the results of MR Newman’s actions and how even the Libs admit they are a precursor to their actions should they win govt we should eb very worried about the economic consequences of an Abbott govt.

    Also did anyone else wonder what Old Joe Hockey had been doing the night before his press conference yesterday, he sounded like he couldn’t really give a stuff.

    David Hand – This countries current issues aren’t due to the introduction of a mining tax but that one wasn’t introduced sooner.

  5. iggy648

    I get a bit confused. Taxable income is essentially income minus costs. As mining companies slow down their investment in stuff (i.e. reduce their costs), doesn’t that mean their taxable income, and hence the tax paid, will increase? Herb Elliott has said that Fortescue expects to pay $1B this year and $2B next year in taxes and royalties, presumably up from close to $0B in taxes last year. (It pings me off a bit that they lump royalties in with taxes, as surely royalties are just the cost of raw materials, and not a tax. If I buy steel for 20c/kg and sell steel widgets for 50c/kg, can I claim that I’ve already paid 20c/kg in tax?

  6. taylormade

    Am confused also, explain it for me please Jimmy, wasnt the govt planning to reduce the Co tax rate to stimulate the non- mining sectors of the economy ??.

  7. David Hand

    Iggy,
    Slowing down investment in new mines does nothing to reduce costs. Most of the investment in mining is for new projects that will come on stream in the next 2 to 4 years. Once a project starts operating, it has the following operating costs-

    Wages and salaries
    Spares
    Energy
    Loan repayments
    Royalties

    What has happened in the last 4 months is that the spot price for thermal coal has fallen so far that as supply contracts roll over, revenue per tonne is below the above costs. Therefore thermal coal mines are now going on to care and maintenance.

    The impact of this is that royalties stop and the resources companies stop paying the mineral resources rent tax.

    The metallurgical side, coking coal and iron ore is holding up but barely. When iron ore collapsed to about $80 a tonne, it made every iron ore miner in Australia except Rio Tinto and BHP unprofitable. It has bounced back to about $120 but such events do nothing for confidence about future investment, which is why they are all postponing new projects

  8. David Hand

    In answer to your last qustion, you would deduct the 20c/kg from your revenue to have a gross profit of 30c/kg. you then deduct all your operating costs such as interest and wages etc and what is left over is taxable income. Say that it is 6c. Should the price of steel widgets fall to 40c, you are now unprofitable and cease production. This is what has happened to thermal coal and is possibly going to happen to coking and iron ore – the three commodities that pay the MRRT.

  9. David Hand

    Jimmy and Hamis,
    What do you think governments in Europe should do to head of the imminent collapse of their economies? Solve chronic endebtedness with more debt?

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