An NBER working paper cited by Treasury to support its resource rent tax recommendation has been updated by the authors.
The Australian has a story today on page three about the plummeting fortunes of Australia’s tourism industry. It highlights figures that show that at the start of this decade, Australia gained $3.6b more tourist dollars from overseas than we lost from our own travels abroad. Now, Australian tourists spend $9b per year more overseas than foreign tourists spend here.
The obvious explanatory factor isn’t the efficacy of our tourism ads or the deficiencies of our tourism industry. Other things being equal, Australia hasn’t become less attractive as a travel destination over the past decade. But one very big thing has changed: the value of the Australian dollar. The article does mention the soaring exchange rate as a factor, but quickly glosses over it.
Why has the dollar soared? Soaring commodity prices have driven mining investment, pushing up demand for our currency from investors. It serves to hollow out other sectors that rely on international trade, like manufacturing, education and tourism, as our tradable goods and services become unaffordable to the rest of the world. It’s known to economists as ‘Dutch disease’.
Funnily enough, the Government and the wonks at Treasury have recognised the problem, and tried to do something about it. Their solution was a resource rent tax that would flatten out the disparities in our two-speed economy and put downward pressure on the exchange rate (particularly if some of the revenue was invested off shore). But, as we all know, the initial form of that tax was shouted down by wealthy vested interests, aided and abetted by a complicit media, led by the Australian newspaper. Now the Australian is wondering why sectors like tourism are contracting.
If the Australian is looking for reasons why our non-mining export industries are struggling, it should look back at its front pages over the past few months. Its anti-Labor and anti-resource rent tax campaign has not only sunk the more robust version of that tax, but imperilled the entire cause of economic reform.