Bloomberg appears to have declared open season on the Australian economy today with two pieces giving us a serve. First up is Satyajit Das:
First and most obviously, the Australian economy is still far too dependent on “houses and holes.”
During part of the typical business cycle, national income and prosperity are driven by exports of commodities — primarily iron ore, liquefied natural gas and coal — that come out of holes in the ground.
At other times, low interest rates and easy credit boost house prices, propping up economic activity. These two forces have combined with one of the highest population growth rates in the developed world (around 1.5 percent annually, driven mostly by immigration) to prop up headline growth.
Yet a significant portion of housing activity is speculative. Going by measures such as price-to-rent or price-to-disposable income, Australia’s property market looks substantially overvalued.
Meanwhile, GDP per capita has been largely stagnant since 2008. Australia’s manufacturing industry, once a significant employer and an important part of the economy, has increasingly been hollowed out.
The country’s cost structure is high. Improvements in productivity have, as elsewhere, been lacklustre. Infrastructure is aging and unable to cope with the demands of a rising population, especially in major cities. Australia stands at 21st place in the 2017 Global Competitiveness Report. It ranks 15th in the World Bank’s ease of doing business list.
…Government net debt borrowing, ostensibly low at around 20 per cent of GDP, is higher than it looks. That figure ignores borrowing by state governments, which adds around 10 per cent to government debt levels. It also ignores contingent liabilities, such as implicit government guarantees. These relate primarily to Australia’s large banking system, which accounts for over 200 per cent of GDP. In 2008, the government was forced to guarantee bank deposits and borrowing to ensure liquidity.
And Michael Heath as well:
There’s been no major economic reform since the turn of the century, with just about every attempt reversed or cannibalized by toxic politics. And the impact is starting to show. Just when the economy needs growth drivers outside of mining, a slide in global rankings for innovation and education suggest living standards could decline. The miracle economy that shrugged off the global recession is turning mediocre.
“Now that we don’t have the benefit of the mining boom, there’s nothing really that replaces it in terms of driving economic activity,” said Jeremy Lawson, chief economist at Aberdeen Standard Investments in Edinburgh and a former Reserve Bank of Australia economist. “The really big task of governments over the next 5 to 10 years is to deal with these big structural issues that Australia is facing. Potential growth is relatively weak.”
…That political dysfunction is threatening the nation’s prospects. A policy vacuum around energy has seen electricity prices surge to among the highest in the world, despite Australia holding some of the largest coal and gas reserves on the planet. The building of a nationwide broadband network has become a political football plagued by cost overruns and delays, with internet speeds languishing below those of some former Soviet bloc nations. And home ownership among young Australians is the lowest on record as successive governments have failed to tackle generous tax breaks that have helped turn housing into a speculative financial asset.
…Responses are required across several fronts. A taxation overhaul would provide incentive and encourage entrepreneurs, while reforming competition policy would help boost productivity. Investment is also required in human capital. Australia needs to radically improve science and math education and help gear a predominantly services economy to meet the rising demands of Asia’s burgeoning middle class.
Australia’s $49 billion broadband network was meant to spearhead a digital revolution. Instead, the botched project risks becoming a poster child for government mismanagement.
The nation’s biggest-ever infrastructure investment has turned into a political football, plagued by cost overruns and construction delays.
With the network years behind the original schedule and only about half finished, Australia has slumped to 50th place on a global ladder of internet speeds, behind Kenya and a string of former Soviet bloc nations. Public frustration with the project is boiling over amid mounting criticism that politics is trumping policy across a host of areas from housing to energy and damaging Australia’s economic prospects.
“We are really an example of how not to do it,” said Paul Budde, a Sydney-based former adviser to the United Nations on the social and economic benefits of digital development. “We have ended up with the worst possible solution.”
Drip, drip, drip. Folks are listening.
