AUSTRALIA'S ECONOMIC RESTRUCTURING AND ITS POTENTIAL IMPACT ON PETROLEUM EXPLORATION

Abstract

Changes in the structure of a modern economy are a natural function of altered world and domestic economic circumstances. It is important that the instrument of change be the marketplace. Governments around the world have not demonstrated a superior ability to 'pick winners'. There are many instances where governments have used public funds to foster the development of particular industries only to find that, as a result of economic circumstances, the favoured industries' reliance on public funding becomes chronic. The Government's role should be to ensure that market signals are transmitted and received clearly.

In Australia structural change in the economy has been a fairly slow process. This has been brought about by the numerous obstacles that have existed in the marketplace. These have meant that, not only were market signals distorted or delayed, but when received did not motivate appropriate responses. For example, labour market rigidities, inequitable taxation policies, a fixed exchange rate, together with State Government charges, have posed real impediments to implementing the necessary adjustments to the Australian economy.

The Australian mining industry and the petroleum industry, in particular, have always been geared to the world market and have increasingly constituted an important component of the nation's export receipts. With regard specifically the petroleum industry, the world price downturn of the past few years and the Government's decision to drop its import parity pricing will result in major changes in the Australian industry, particularly in the exploration sector. These signals suggest a world oversupply of petroleum with the corollary that additional reserves are not needed. A resultant downturn in exploration could develop into an irrevocable reversal and jeopardise the nation's strategically important petroleum industry.

In light of the diminished circumstances of the sector it is essential that the petroleum industry receives equal treatment regarding taxation and other Government imposts. Failure to remove the discriminations against petroleum and to impose a uniform structure will result in a misallocation of resources and the possibility of a permanent winding down in exploration.