Australian Prime Minister Kevin Rudd talks with conservative opposition leader Tony Abbott
© Reuters

The Australian coal-mining town of Moranbah was fleetingly famous for its sky high rents and tales of mine workers being flown in to fulfil China’s voracious demand for raw materials. Locked in the grasslands of central Queensland the town was one of the epicentres of the mining resources boom. In 2011, its population grew by more than half to 33,000 in a single year.

But with growth in the Chinese economy slowing and prices slumping, many mines are now barely profitable, prompting a rash of closures and suspensions leaving towns such as Moranbah to pick up the pieces.

“You started to feel it in April, May last year,” says Alexis Coutts, who has lived in the town for 20 years and works for a mining services provider. She says mining lay-offs in the area have continued throughout 2013 although at a reduced rate in the past two months.

The scenario is being repeated in other Australian towns underlining what many suspected but perhaps did not want to admit: that the boom could not last forever.

Resource company investment totalled more than A$80bn (US$71bn) in 2012, with these investments rising from 2 per cent of GDP in 2003 to about 8 per cent this year, its peak according to the Reserve Bank of Australia.

It is in places such as Moranbah, a tightly contested seat, where Saturday’s general election will be decided. And its story poses one of the biggest challenges for whoever takes power after September 7 – how to fill the gap in the Australian economy left by the end of the mining boom in a country that has not seen a recession since 1991.

Both prime minister Kevin Rudd and opposition leader Tony Abbott, the favourite to win the poll, have avoided too much discussion while campaigning of how to fill the void instead pressing ahead with voter-friendly spending promises.

While Mr Rudd has repeatedly mentioned the “new economic challenges” for the world’s 12th largest economy, the Labor party’s key strategies to address the shift from mining are an expensive fast national broadband network to boost productivity and $15bn of spending on schools.

At the formal launch of his party’s campaign on Sunday Mr Rudd promised tax breaks for small business and legislation to ensure Australian companies participated more in major expansion projects.

In a recent TV debate Mr Abbott accused his opponent of having “killed” the mining boom through his tax policies but the Liberal party leader did not offer a vision of how the gap – which many predict will see a sharp fall in government revenue – might be made up.

”The election is happening at a significant stage in what’s been a very long economic cycle in Australia,” says Saul Eslake, Bank of America Merrill Lynch’s chief economist in the country. “We have this problematic transition from growth led by resources investment to growth led by other things. And that’s proving harder to pull off, while keeping growth to trend, than had been expected.”

The Liberal party’s coalition with the National party has promised to match many of Labor’s key spending commitments and add some large ones of its own. Among its targets are the abolition of the mining and carbon taxes while launching a large-scale paid parental leave scheme, costing A$5.5bn annually.

“The biggest challenge the parties face is that there is going to be less opportunity for boosting government revenues in coming years,” says Paul Bloxham, HSBC’s chief Australia economist.

Critics argue that the Labor government squandered the mining boom by running up record debt and budget deficits but few have clear ideas of what can replace it. The RBA has expressed hope that housing construction could help – dampening the country’s high housing costs and providing employment for those previously occupied building mine extensions and LNG plants.

There is also some hope that the falling Australian dollar will boost export demand. But the RBA noted at its last policy meeting that despite its cutting cycle, the currency “remains high by historical standards” even though it has fallen 15 per cent since April.

BofA sees gross domestic product growth in 2016-17 dropping below 2 per cent for the first time since the financial crisis, and a secular shift into spending outpacing tax receipts thereafter.

That anticipated decline in tax revenue, is stirring debate over the budget. Having previously pledged to return to surplus within its first year of government Mr Abbott’s conservative coalition has shied away from that promise in recent weeks. When pressed about this timeline Joe Hockey, shadow treasurer, said he did not want to make “big heroic promises that are never delivered”.

Australia’s financial position may still be the envy of many of its peers, with its net debt below 12 per cent, but the picture is changing. Unemployment, well below 5 per cent for much of the late 2000s, has recently begun to edge closer to 6 per cent, already highly leveraged householders are reluctant to take on new debt and business investment appetite is poor outside of the mining and energy sector.

If the coalition – which leads Labor 53 per cent to 47 per cent in the most recent Newspoll – wins the election Mr Eslake of BofA expects business confidence to improve after three years of uncertainty under a Labor-led minority government. However he questions whether that confidence will be sustained.

”While they prefer the alternative to the present government, I don’t think business has extraordinarily high hopes for the new government,” says Mr Eslake.

Back in Moranbah Ms Coutts is undecided about how she will vote on Saturday. Last time, Labor won the town’s electoral division by a relatively small margin of 3.7 per cent. The opposition needs to win just four marginal seats like this one in Australia’s lower house to form a government.

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