Australia has no clear jobs path away from mining boom, Hewson warns

FORMER Liberal leader Dr John Hewson has warned the outlook for China is much bleaker than anyone realises, spelling bad news for Australia.

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FORMER Liberal leader Dr John Hewson has warned the outlook for China is much bleaker than previously acknowledged, and says Australia still has no clear path away from a resource-dependent economy.

Dr Hewson, a former Reserve Bank and International Monetary Fund economist, said China’s official quarterly growth figure released earlier this week, which fell below 7 per cent for the first time since 2009, could not be believed.

“I’ve never been a believer in Chinese growth numbers,” he told the Citi Investor Conference in Sydney on Wednesday. “They are manufactured numbers. My own view is the growth number is probably closer to 5 than 7 per cent.”

He said a senior delegation of Chinese climate change investors recently told him their modelling for the 2020s was based on a growth rate of 4-5 per cent.

“That’s a big hit on us, because it means their coal imports, their iron ore imports, are going to be much lower than we imagine. The capacity to underwrite another commodity price boom is limited when you look at China as one of the main drivers.

“I’m pessimistic because China has a lot of structural problems which are coming to the fore. They’ve got very serious bubbles in property, stock markets, serious problems in the banking and shadow banking system in terms of non-performing loans, which will further slow the capacity of their economy to grow.

“We are at risk in a very serious number of ways.”

Dr Hewson said the government’s prediction of a return to surplus by the end of the decade was based on two shaky assumptions: that growth would “rocket back” to 3.5 per cent in the last few years of the decade, and that it could hold onto bracket creep which would push median income earners into the second and eventually top tax bracket.

“Since that first Abbott-Hockey budget the government has been backing off some of those tougher decisions such as university fee deregulation, so the magnitude of the deficit problem is growing, not shrinking, in a context where the growth numbers are about half what they’ve imagined they would be,” he said.

While some sectors such as services, education and domestic tourism would benefit from historic low interest rates and a lower Australian dollar, Dr Hewson argued it was hard to identify where the real jobs were going to come from to pick up the slack from the mining boom.

“There’s nothing in either the government or opposition strategy [that answers that question],” he said. “I just can’t see it.”

Given the “challenging” domestic policy environment, Dr Hewson tipped that Australia could be heading to an election as early as March as it will be too risky for the Turnbull government to bring down a budget without seeking a mandate for tough reforms.

“Over the last 10 years we’ve let good government drift, and the problems have gotten bigger. Areas like industrial relations, education reform, healthcare reform, tax, they’ve all been allowed to drift,” he said.

“There’s no way you can tinker with any of those anymore to have any marked effect. You need broadbased, whole structural reform to deal with any of them, and a lot of those decisions are going to be difficult politically.”