Business Spectator’s Rob Burgess has written another solid piece today on the “reckoning” about to be bestowed on the Australian economy as the once-in-a-century commodity price and mining investment booms unwind:
Well, Prime Minister Tony Abbott couldn’t have wished to live in more interesting times. A combination of global and local factors are imposing the Great Australian Reckoning on his first term of government…
For more than a decade, our political economy has been riding two horses – resources and the housing finance industry – that have kept money swirling around, GDP growing, unemployment and inflation low and even won former Treasurer Wayne Swan Euromoney’s ‘Finance Minister of the Year’ award.
But even Swan, while trying to enjoy that accolade in 2011 (as a hostile media rained on his parade) would have known that a reckoning was due…
The Great Australian Reckoning was always going to arrive – the end of a once-in-a-lifetime terms-of-trade boom is happening right now, as international competition and shaky demand from China lower the prices of our commodities exports. That is amplified by a sharp decline in the capital inflows that were funding the construction of resources projects.
And, simultaneously, other sectors of the economy realise that we’ve been paying ourselves too much during the good times…
The tale of excess goes back to the Howard years, when tax revenues grew rapidly during the ‘mining boom mark I’ and Peter Costello played Santa with tax cuts and family tax benefits. He even posted families one-off bonus cheques at one point.
As Howard and Costello paid off the federal debt left by Keating, private debt spiralled upwards. Consumers got drunk on the easy credit of the mid- to late-2000s housing boom – a non-productive ‘boom’ in which we took other people’s savings, parked it in our houses, and then drew it down to artificially boost ‘incomes’ to live high on the hog.
And when the GFC slammed the door on that party, the Rudd and Gillard governments took up the slack, borrowing to keep small businesses going through thousands of lucrative government contracts…
In 2014, the reckoning for all of these excesses is upon us. The Abbott government is walking a tightrope on so many issues. If it succeeds in restructuring the economy over the 2013 to 2019 period, it will be put alongside the Hawke-Keating government as having pulled off major historic reform…
Australia can negotiate these challenges, particularly if journalists focus less on the acrimonious tribalism that has defined politics in this country for the past few governments and devote more space to how these diabolical policy problems can be solved.
Burgess cites four major challenges confronting the nation:
- turning around Australia’s infrastructure deficit in order to unlock productivity gains;
- opening the way for other industries to replace the jobs lost in manufacturing (e.g. Ford and Holden);
- encourage the recapitalisation of agribusiness and high value-added food exports to feed Asia; and
- reform the tertiary education sector so that it is world’s best practice.
In the comments section, MacroBusiness’ own Pfh007 highlights one area overlooked by Burgess that is central to unlocking Australia’s potential: more flexible and efficient markets for land:
One challenge was not mentioned and perhaps is the most important.
Encourage more flexible and efficient markets for land – which is the fundamental input to much of the economy.
By driving up the price with artificial supply constraints in every state and encouraging our TBTF banks to borrow billions from overseas, we have skilfully engineered a massive increase in our cost structures.
Workers pay too much to buy or rent and need/seek hirer wages.
Businesses pay too much rent and need/seek higher prices.
With a population of 23 million on a continent this is a remarkable own goal.
We need lower cost land and if we are going to borrow OS we need that capital directed to productive investment in plant and equipment.
All that is required are policies at state level – encouraged by the Federal govt with cash or arm twisting – to reduce the current restrictions on land use.
And limitations on the amounts our TBTF (govt guaranteed) banks can borrow overseas for lending in residential real estate.
If foreigners wish to invest directly via RMBS in our mortgage market let them as poor judgement by them will not involve a public bailout – unlike our TBTF banks.
Spot on. In a sparsely populated nation like Australia’s, abundant low-priced land should be a competitive advantage, rather than a millstone around the nation’s neck. The planning debacle that has taken place in Australia, articulated beautifully today by Family First’s Bod Day, represents a massive own goal on our behalf.
