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Australia's new PM raises hopes for economy as mining fades

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(Globalpost/GlobalPost)

Prime Minister-elect Tony Abbott's declaration that Australia is "open for business" and promises of tax cuts and reforms have raised hopes he will re-energise the economy as makes a painful transition from a mining boom.

Australia's commodities-powered economy is seen as a global success, and its resilient growth, low unemployment and surging resources sector have shielded it from recession for more than 20 years, even during the global financial crisis.

But as the decade-long mining boom unwinds, the economy is slowing down as it undergoes a difficult shift to other drivers of growth.

Abbott, whose conservative coalition ended six years of Labor rule, has vowed to cut back on regulation, abolish a tax on carbon and another on mining profits, and cut the company tax rate -- all while reducing government spending.

And while the biggest companies will fund a new levy to pay for a parental leave scheme and there will be less money for foreign aid, there will be greater spending on infrastructure under Abbott's pledge to build the "roads of the 21st century".

"Taken together and assuming the policies are implemented, this should lead to smaller government, less regulation and over time improved productivity and growth in the economy," said chief economist at AMP Capital, Shane Oliver.

Australia has enjoyed a growing economy despite global turbulence, with GDP at 2.6 percent on year and unemployment at 5.7 percent, but revenues from the unprecedented mining boom are dropping and a bumpy transition is under way.

The business sector, which had argued that taxes on carbon emissions and mining profits had hurt competitiveness and cost jobs, has welcomed the end of Labor's minority government with the clear win for Abbott.

The Business Council of Australia said voters had given Abbott a clear mandate, after the tumultuous era under Labor which ruled with the help of a Greens MP and several independents.

"Its commitment to return to proper process in government will go a long way to restoring predictability and confidence, which in turn will foster a growing economy," Business Council of Australia President Tony Shepherd said.

Chief executives also welcomed the end of minority rule which had been blamed for uncertainty, which some felt had made households cautious and curtailed discretionary spending.

"Without a doubt, a restoration of consumer confidence is the key issue for Woolworths," said the supermarket giant's Grant O'Brien.

"We have a robust business that has continued to invest and create jobs over the last few years but our plans to deliver future sustainable growth are underpinned by a return to certainty," he told the Australian Financial Review.

The resources sector, which will be relieved of the mining tax, was also receptive to the election result, which included a swing away from the Greens vote.

"We look forward to a period of political stability and considered policy from a government that consults with business and listens to the people who create wealth and opportunity," Fortescue Metals chief Nev Power told the Australian Financial Review.

Sinclair Davidson, professor of institutional economics at Melbourne's RMIT University, said the business sector had in general welcomed the change of government as they tended to see the Labor administration as "anti-business".

"I think business often felt ambushed when new policies were suddenly just sprung on them," he said, referring to the heavy tax on mining "super profits" touted by then prime minister Kevin Rudd in 2010.

"I suspect that the incoming government will be less like that."

He said it remained to be seen whether Abbott would stick to his promises, saying he was already seeing a winding back on when a coalition governnment would deliver a surplus.

"Every single government always promises to go on a deregulation spree, and we seldom actually ever see deregulation," Davidson added.

The three major credit agencies Standard & Poor's, Moody's and Fitch all Monday reaffirmed Australia's AAA sovereign rating, saying they expected little change to the fiscal framework from a conservative government.

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http://www.globalpost.com/dispatch/news/afp/130909/australias-new-pm-raises-hopes-economy-mining-fades-0