Statement 4: Opportunities and Challenges of an
Economy in Transition (Continued)
Introduction
Over time Australia has undergone major changes in the structure of its economy, converting its natural advantages into an economy built primarily on the skills, effort and innovation of its people and businesses. This transformation into a knowledge‑based, diversified and service‑oriented economy will underpin Australia's long‑term prosperity.
The current shift in the global economy towards Asia will also have a profound influence on this evolution.
For Australia, this change in the world's economic geography is evident in the high terms of trade and the gathering pace of the mining boom, which are being underpinned by strong demand for our mineral resources. Australia has been able to take advantage of high commodity prices, including through the shift of resources to the booming industries and states. These developments have resulted in challenging times for other trade‑exposed industries — reflecting a prolonged shift in comparative advantage.
But the implications will not stop at the mining boom. Asia's re‑emergence will have other major and lasting effects on how Australia does business in the 21st century. As incomes in Asia rise and as more people are brought into the global middle class, consumption patterns will continue to shift towards higher order goods and services. The rise in the Asian middle class will drive global consumer markets and lead to broader economic opportunities for Australia.
To maximise the opportunities that will flow from the continued rise of Asia, Australia needs to continue to change and innovate — as it has done in the past. We need policy settings and institutions that harness the talents of our people and allow them to make the most productive use of those talents and respond to a changing world. Australia will also need to manage some of the short term challenges from the current mining boom. Managing this transition successfully will allow Australia to convert opportunities into lasting prosperity.
The need to lay the groundwork for transition reinforces the importance of policies, including those in this Budget, to provide for macroeconomic stability, flexibility and appropriate incentives — including a price on carbon — for individuals and firms, and that develop peoples' skills to make full use of their talents. Doing so will allow for an improvement in material living standards across the community, notwithstanding the pressures from other long‑term drivers affecting Australia.
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