Longevity of mining boom uncertain: BCA

The Business Council of Australia (BCA) is warning the Federal Government not to be complacent about the longevity of the resources boom, saying high commodity prices may not last.

The view of many economic forecasters, including the Reserve Bank, is that the resources boom is here for the long term.

Many think the continuing demand from China and India for Australia's iron ore and coal will underpin the health of the budget.

But in its pre-budget submission, released today, the Business Council says a small change in commodity prices or Australia's terms of trade could create a budget shortfall.

BCA president Graham Bradley says there is no such thing as a sure thing.

"It's a very real risk and we have highlighted it in our budget submission - a very small change in commodity prices or our terms of trade could have a dramatic impact, negative impact on our budget situation," he said.

"That is an unhealthy reliance if we are building on recurrent spending based on unsustainable commodity prices."

The BCA has cited research from forecaster Access Economics that commodity price surges are temporary rather than permanent.

Access warns that over the long term iron ore prices could halve and coking coal prices could fall by 38 per cent.

That could lead to a budget shortfall of between $7.5 billion and $36 billion.

Mr Bradley says rather than relying on the boom, the Government should prepare for potential shocks.

"We all know business cycles turn and what we've called for again is a proper analysis of this in the budget, not just this year but every year so that again we can debate the merits of spending in the light of those risks," he said.

The BCA's concerns have been echoed by Grattan Institute economist Saul Eslake.

He says Australia needs to learn from previous commodities booms by creating a sovereign wealth fund as a buffer against future corrections.

"I think we owe it for future generations to ensure they benefit from this largesse as well through, among other things, better quality infrastructure, better health and education systems, closing the gap between the living standards of Indigenous and non-Indigenous Australians," he said.

A director at Access Economics, Chris Richardson, agrees that recent governments have squandered the proceeds of the mining boom.

"The great boom in China and other emerging economies has driven ever higher prices for the sorts of things that Australia sells to the world," he said.

"In turn that has delivered a lot of money to the taxman on a platter and there has been a great incentive and tendency to spend that on the one hand through a series of tax cuts and on the other through spending itself."