Michael Pascoe writes:

Peter Costello’s tax (and political) opportunities are all riding on the back of a young Chinese peasant.

While
he still has rice paddy mud between his toes, he’s leaving the village
and the life of a subsistence farmer to try his luck in one of the
scores of Chinese cities most of us have never heard of. He has no
skills to speak of – one of the reasons labor is cheap in China is
because it actually isn’t worth much – but he hopes to pick up
something for cents a day as factory fodder, labourer, street sweeper,
whatever.

Costello’s peasant might look like a rather thin reed
on which to base a tax and political agenda, but he has some 20 million
brothers and sisters doing the same thing he is this year – the
population of Australia. And another 20 million or so next year and the
year after and the year after that and then maybe 25 million for at
least the 10 years that anyone is game to predict.

In all,
somewhere between 200 and 250 million peasants will move to the cities
in the next decade – a bird flu pandemic not withstanding. The new
housing being built for them might not be flash, but it has copper
wiring for the electric light and pipes and concrete walls and, from
those cents-a-day wages, there will eventually be a fan for the summer
and so it will go.

That’s what’s powering the ongoing
commodities boom which is pouring money into the Australian Tax Office,
and from there into Costello’s political hopes.

Along with a
little help from a resurgent US economy and a world-wide pick up in
manufacturing, that commodities boom is not ending any time soon. The
Chinese construction boom can’t stop because it is government policy to
move a quarter of a billion peasants from unproductive farms to more
productive cities.

The main threat to the profitability we are
extracting from that boom is a surge in commodities supply, but that
isn’t happening soon either. You can’t build a major iron ore mine
overnight. And the growth in demand is keeping pace with the projected
growth in supply.

That’s why we have the luxury of playing games with tax cuts – all those millions of people working for cents a day.