For all the extraordinary change in mining prices and mining investment, the impact of the boom on Australians and the Australian economy has not been as expected, or not when expected. One way to see this is by comparing the performance of the economy over the 10 years to the end of 2002 – before the beginning of the commodity price boom – to the 10 years that followed.
Our first discovery is that the Australian economy grew faster before the mining boom began than it has since. The average yearly rate of output growth from end 2002 to the end of 2012 was 3%, markedly below the 3.8% average for the preceding 10 years. The conventional measure of real GDP per head shows a 15% increase in the 10 years to the end of 2012 – only half the increase in the 10 years to the end of 2002. The Australian economy slowed during the global recession in 2008 and 2009, but even removing those years, output growth was not markedly stronger than before the boom.
Our second discovery is that despite the vast increase in commodity prices, Australian incomes rose no faster after the boom began than they did before. It is true that on one standard measure incomes rose somewhat more rapidly in the boom. In the 10 years to the end of 2012, nominal GDP increased on average 6.6%, compared to an average rate of 6.1% in the 10 prior years.
But the picture changes when we look at real income as opposed to nominal income.
In calculating the real income change we use measures designed to take account of the changes in the terms of trade, or the movement of export prices compared to import prices. These measures are based on the notion that if export prices rise more than import prices, then in some sense Australians could buy more imports for the same amount of exports.