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BIS Shrapnel puts holes in govt estimates

BIS Shrapnel is forecasting a 3% fall in mining and heavy industry construction activity for the ...

Blair Price
BIS Shrapnel puts holes in govt estimates

The controversial and yet-to-be finalised resources super-profits tax is scheduled to start on July 2012, but the Treasury is also counting on more than $60 billion of private engineering construction by 2011-12.

Meanwhile, BIS Shrapnel is forecasting the private sector to fund around $48-50 billion of engineering construction for the next two years, with a decline coming up in 2010-11.

“Combined with recent March quarter data, which showed another consecutive decline in privately funded engineering work, our analysis suggests that activity in this segment will trend lower through 2010-11 and not experience the overly optimistic boom being modelled by Treasury,” BIS Shrapnel infrastructure and mining unit senior manager Adrian Hart said.

Detailed in its Mining and Heavy Industry Construction in Australia, 2009-10 – 2023-24 report, the economic forecaster expects construction from these sectors to “eventually pick up again” after a mild recovery in 2011-12.

“The key difference is that we expect the stronger growth to come through later in the forecast period, not earlier,” Hart said.

“Over the next one to two years the sector will be hit by the completion of projects that served us well through the GFC and also by the lack of commencements through calendar year 2009.

“By 2012-13 we expect the next round of projects will be well underway across iron ore, coal, and oil and gas. By the middle of the decade, this is expected to be joined by an upswing in base metals investment.”

The forecaster is expecting mining and heavy construction activity in New South Wales to sit around $2 billion throughout the next three years after peaking at $2.4 billion in 2008-09.

In Queensland, BIS Shrapnel expects another round of coal mining expansions to help drive a strong resurgence in private construction spending from 2012.

RSPT

BIS Shrapnel said its weaker outlook was not the consequence of the new tax proposal.

“We were already factoring in a weakening in mining and heavy industry construction prior to the announcement of the RSPT,” Hart said.

“While the RSPT has increased uncertainty in the mining sector in the short term, we believe this is more the result of a lack of effective communication and consultation between the federal government and the mining industry about aspects of the tax, not its fundamental structure.

“Ideally, we would like to see the federal government and the mining industry resolve their differences on the RSPT sooner rather than later.”

He added that BIS Shrapnel did not believe recent decisions taken to delay or cancel mining projects had been driven solely by the proposed RSPT.

“Nor do we believe that the tax, once finalised and implemented, will weaken overall mining investment in Australia.”

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