Various explanations have been offered for Prime Minister Julia Gillard’s decision to announce the date of the 2013 federal election almost eight months in advance. Most commentators, both those who applaud the move and those who decry it, focus on political tactics, but economics should not be overlooked.
The Australian economy is shifting gears. The Reserve Bank’s index of commodity prices has fallen 20% from its peak in 2011, pulling down Australia’s terms of trade (ratio of export prices to import prices). Falling export prices, other things equal, slow the growth of national income even as national output continues to grow at more or less the same pace. The point is simply that our customers pay less for what we sell them even though we sell the same volumes, resulting in lower export revenue or income to us.
Slower growth of national income will make for tougher economic times. For a start, the chances of the government balancing the federal budget have all but disappeared, at least without quite marked (and electorally risky) reductions in federal outlays. Falling national income hits budget revenue, both at the state and Commonwealth levels, forcing expenditure restraint onto deficit-conscious governments.
Falling national income has had a similar dampening effect on the revenues of private firms, leading them to shelve planned investment and labour-hiring plans. Consumers see all of this and become even more cautious, moderating their consumption and increasing savings.
This dampening influence will continue as long as export prices keep falling — or until something else turns up. In fact, something is expected to turn up, but not until the second half of 2013―hence the contribution of economics to the PM’s choice of polling date.
While no-one is predicting a turnaround in Australia’s export prices anytime soon, export volumes are set to pick up as the mining boom morphs from its investment phase into its export phase. Many commentators, including the Reserve Bank, have predicted that mining investment will peak this year. Other things equal, falling levels of mining investment will add further negative impetus to income growth notwithstanding the near-stratospheric levels that mining investment has reached as a share of gross domestic product during this boom.
But other things are not equal. As mining investment begins to wane, mining exports begin to wax. Export volumes will rise as mining projects come on line, most especially in oil and gas. Importantly, export volumes are expected to contribute positively to economic growth well into the foreseeable future.

The accompanying chart illustrates the economic gear-shift that Australia is currently negotiating. Engineering construction — the on-the-ground manifestation of mining investment — is forecast to contribute substantially less to GDP growth in 2013 than it has since the onset of the boom. However, as mining investment tails off, mining exports are expected to pick up; indeed, the composition of GDP growth reflects an ongoing contribution from exports to the end of this decade and beyond.
Looking at the chart, we see that the changeover is not entirely smooth. Aggregate economic growth is expected to slow during the transition because mining export growth will pick up more slowly than mining construction tails off. This is likely to be more evident in the first half of 2013, when we can expect to see some uptick in the rate of unemployment and at least one further cash rate reduction from the Reserve Bank to prevent too much clashing of the gears on the way through.
The gist of the so-called “political business cycle” theory is that governments win or lose elections according to economic conditions prevailing at the time. Delaying the federal election until the second half of 2013 makes sense if the forecasts are right and the government can point to improving conditions.
The transition from investment-led to export-led growth should also modulate upward pressure on the exchange rate for the Australian dollar. Foreign capital inflow has funded much of Australia’s mining investment boom and the sharp run-up in this boom has taken the exchange rate with it. Export-led growth will still sustain the exchange rate above what most economists acknowledge as its longer-run value (something well below parity with the US dollar) but should allow some room for depreciation from recent highs.
The high exchange rate for the Australian dollar is the mainspring of the “two-speed” economy and its attendant economic and political tensions. Whichever party assumes government following the September election, the fallout from such an extended period of exchange rate appreciation on those non-mining parts of the economy exposed to foreign competition will still be evident.
The challenge for both political parties is to help Australians understand the economic transition we are experiencing and to look to the longer-term benefits for Australian living standards and prosperity.
John Newlands
tree changer
I think export volumes may be less than we think, specifically for coking coal, iron ore, thermal coal and LNG. A steel industry slowdown in Asia could reduce demand for the first two. If Japan restarts its nuclear reactors the LNG price could retreat substantially. There are moves afoot to restrict LNG exports from the Gladstone hub to moderate price rises of piped gas on the east Australian coast. Those calls will get louder when shipments get into full swing in 2015.
As to thermal coal within importers India and China and exporters Australia and the USA there is considerable disquiet. Chindia because of pollution and with us the hypocrisy of concern for global emissions. In general terms the world oil price may also slow things down. Far from getting 'better' Australia's mineral boom may have peaked.
Richard Koser
Dude
Just one thing, Doc. The election wasn't 'delayed'. Gillard had a written agreement with the independents to go full term. There were realistically only two or three dates in September and October when the election could be held.
You recognise the economic dislocation caused by the mining boom. Contractions in tourism and education for instance, beating up retail and manufacturing. Hard to push down our currency when the US and Japan are printing so much money and Europe and China are trying to export their way to growth.
So why don't we just tax the miners like Rudd planned? Tax revenue, downward pressure on the AUD. No downside except for mining company investors, most of which are overseas. We'll need to create jobs somehow, once the mines are built they don't need many humans to run.
William Raper
Mr.
Thanks Richard, seems Kevin and the boffins were right after all!
We better vote Labour in and hope like hell they can withstand the heat from the miners this time - we can be sure the Libs won't even try!
Geoffrey Harold Sherrington
Boss
Richard Koser,
Read moreWhy not present a table year by year of the balance of trade in tourism over the last 30 years?
I have not looked at the figures recently, but earlier on, Australians abroad spent far more than visitors to Australia. That makes tourism a loser. In any case, it is non-productive. It merely rearranges the locations at which people eat, sleep etc, thus requiring duplication of facilities for such, plus the use of a lot of Avgas.
There is particular irony in the wailing and wringing…
William Raper
Mr.
Unquantified theory of global warming?
Please justify this statement.
Geoffrey Harold Sherrington
Boss
William Raper
There is no paper of which I am aware - and not for want of looking - that states that a given change of atmospheric greenhouse gas concentrations will produce a stated quantitative change in global temperature. It is not even certain that this is a reverse causation problem in which temperature adjusts GHG. There is no Y =aX + b equivalent (or another more complex form of equation). There are guesses, but there are no demonstrations of proof. All carry caveats, large uncertainties and are poor at hindcasting.
None is suitable for the allocation of remedial funds on the scale being spent with wild abandon, lacking proof.
Hence "unquantified theory of global warming".
Please quote the seminal paper on which you rely, but take it for granted that I've read literature including a large selection from the leaked IPCC AR5 SOD. Please don't mention Arrhenius, that merely shows a low level of understanding by you or assumed of me.
William Raper
Mr.
Thank you for your explanation. It seemed to me that "unquantified theory of global warming" was intended to question whether global warming existed. I now see that your are questioning the reason for global warming, a more open question.
Robert McDougall
Small Business Owner
I would disagree with your assessment of the tourism industry. What it does do is finally attach an economic value to natural ecosystems that allow a community to have income streams not dependent upon traditional regional activities, i.e. industrial agriculture and mining.
It also helps conserve these areas as much as possible, which is a goldmine in itself for research i.e. medical science.
It is also an employment heavy industry as opposed to agriculture and mining and doesn't require…
Read moreRobert McDougall
Small Business Owner
so are you saying that because your believe an equation has not been formulated to precisely predict what level of warming would be expected from a percentage increase in GHG emissions that it isn't happening?
ok, you object to remedial funds being spent with wild abandon, lacking proof, how about we transfer those funds to building base load renewables and diversify and decentralise power generation, thereby reducing, (and with the intention of eliminating) fossil fuels as an energy source? Sounds acceptable to me. how about you? or would you have something to lose?
Felix MacNeill
Environmental Manager
Any chance of a comment on this from a real scientist?
Geoffrey Harold Sherrington
Boss
Already I am losing heavily through factors such as the cost of domestic electricity, because low-cost generation is demonised in favour of high cost windmills and other trivia.
And no, I am not saying that the globe is not warming. It's just stopped for 15 years (by the traditional ways of calculation) and that alone throws a big cog in the wheel of the equation, because GHG have risen substantially but temperature has not. I'm waiting for people with greater insight than mine to deduce the…
Read moreGeoffrey Harold Sherrington
Boss
OK Felix, you put your achievements up on a page here, I'll do likewise and let others judge who is most scientific.
Ad homs are not part of good science, nor should they appear on a blog with this ostensible high class heritage.
Since when did 'environmentalism' gain the status of a science? Did you make that one up?
Robert McDougall
Small Business Owner
thats not really a relevant argument, i.e. solvents for dry cleaning. We don't see people say yay "i've found a deposit of dry cleaning solvents." they say yay "i've found coal, oil etc."
If minerals don't have any value until they are mined, why are they included in the calculations of a share price? Why can you borrow money against it before you've dug it up? How can you sell the rights to such if it has no value?
The minerals belong to the crown, otherwise, they would belong to whomever…
Read moreRobert McDougall
Small Business Owner
i suppose you would have to ask those universities that have offered courses in Environmental Science a couple of decades ago.
Or do you mean the action where individuals and communities become concerned about the health and protection of their environment?
I suppose another question is "when did the pursuit of money blind humanity to the fact that they are part of and dependent upon the very systems upon which they are compromising in pursuit of that money?" Would that be something that would be within your sphere of knowledge that you would feel qualified to comment on?
Felix MacNeill
Environmental Manager
Geoffrey, if you can put aside your sanctimonius self-pity and hypocritical ad hom attack for a moment and just calmly read what I said I merely asked for a professional scientific response to your post. It is beyond my ken, but I'm sure there are well qualified people who could answer your concerns.
So before you start attacking, try thinking.
Geoffrey Harold Sherrington
Boss
Felix, an elementary survey of the world shows that the most active conservation effort loosely corresponds with the wealth of the nation concerned. I have no emotion of self pity and I did NOT make an ad hom. No University I ever attended (there were 3) ever had a school of environmental science. These days it's a curious amalgamation of math, physics, chemistry, geology, etc, the core subjects that have been taught at universities for centuries. Just because you give it a fancy name, you do not…
Read moreFelix MacNeill
Environmental Manager
Geoffrey, this is the most extraordinary piece of projection and prejudice-walking I've seen for some time.
You originally raised a technical point about the regularity of the relationship between carbon dioxide levels and recorded temperatures. I would be fairly confident this has been dealt with before, despite your rather dismissive comments about the researchers involved and their explanations. So I expressed a wish for a response from a qualified scientist as I was unable to answer adequarely…
Read moreGeoffrey Harold Sherrington
Boss
Felix,
Can I suggest that the words you write have an element of surprise in them, surprise that someone like me could write actualities instead of theories.
Since my first contribution to "The Conversation", I have been reviled, abused, ridiculed, misquoted accidentally, misquoted deliberately, misquoted maliciously, been exposed to clairvoyants who tell me what I am thinking and generally carrying on like a bunch of supercilious prats who have seldom seen the real world.
If you think that I dwell on free riders and so on, simply keep in mind two phrases "Carbon tax" and "Mining Superprofits tax". I dislike Communism like this because history shows its abundant past failures. Look, if you want a more deep discussion of the above, feel free to email me at sherro1 at optusnet dot com dot au What you read here has been through a filter of brevity and lack of nuance.
Felix MacNeill
Environmental Manager
Was it Doctor Johnson who observed that a politician is like an ape, in that, the higher he climbs the more you can see of his arse? Apparently it doesn't apply only to politicians.
I can't imagine why anyne would bother ridiculing you - you do such a good job yourself.
Geoffrey Harold Sherrington
Boss
Felix, Would you care to make a short list of the factual contributions you have made to this blog theme, and another where you have just done social talk like insults and so on.
Read moreShort story. For many years my employer mining company operated the Mt Morgan gold/copper mine near Rockhampton. In some of its earlier years it was the world's largest single gold mine. Now, I've had meals at the home that was owned by Walter and Eliza Hall, whose holdings in the mine were successful and led to the establishment…
Daniel Boon
logged in via LinkedIn
I loath Tony Abbott, yet a tiny part wants him to win to see him proven for the dolt he really is, as the money stops rolling in and the rich decide to withhold their diminishing gains from the greedy political mouths ...