Australia can't rely on its resources boom to ensure better living standards over the next decade and the government needs to tighten its budget to create room for interest rate cuts, according to trade minister, Craig Emerson.
A government commitment to restore the budget to surplus this fiscal year after four years of deficits will be achieved through spending cuts and possible tax increases, Mr Emerson said yesterday.
"We can't just be reliant purely or primarily on minerals and energy. This government recognises that," Mr Emerson said.
"It would be a good thing if the government gave the Reserve Bank the capacity, if it so desired, for further interest rate reductions."
Australia has managed to avoid recession for 21 years as China's infrastructure-led economic stimulus fuelled demand for commodities such as iron ore and coal, driving the country's trade balance to a 40-year high in 2010.
Australia now has one of the developed world's lowest debt burdens, at just 27pc of gross domestic product, and its highest interest rates at 3.5pc.
A warning last week by economist and government adviser Ross Garnaut that the country would face declining living standards as prices of exported commodities fall was wide of the mark, Mr Emerson claimed.
"The mining boom still has a long way to run," Wayne Swan, Australia's treasurer, said in his weekly economic note.
While "commodity prices have remained lower than what we factored into the budget forecasts", stimuli to growth from mine investment and export volumes "have a way to run" and the government will deliver "responsible savings", Mr Swan said.
The pace of China's iron ore demand has slowed by more than half, Alberto Calderon, chief commercial officer of the world's biggest miner, BHP Billiton, said recently.
BHP last month delayed an estimated $68bn (€52bn) of projects amid a price slump that's driven a key iron ore benchmark down 39pc over the past year. (Bloomberg)