Australian Economy

The “miracle” Australian economy (with its famous run of 24 years without a recession) is an amalgam of pre-modern and post-modern industries with very little in between.

Most economies run at least partially upon the productivity gains produced out of manufacturing and ‘making things’ but in Australia productive investment is supplanted with commodity exports (which make up half of exports) and the recycling of the resultant income is deployed as cash flow for borrowings offshore to pump house prices.

The former step is basically the selling of dirt, a pre-modern activity. The second step is managed via the sophisticated use of derivative markets and is essentially a post-modern activity.

Not that GDP cares given it is only the mindless measure of whirring widgets.

However, both of these activities systematically reduce economic competitiveness by inflating both input costs and the currency. “Dutch disease” by another name. This continuous “hollowing out” of productive activity means the broader economy relies heavily upon the non-stop import of capital, either in the form of debt or in the form of assets sold to foreigners, to generate ongoing income growth.

So long as the underlying income from dirt keeps flowing then the leveraging into house prices that supports consumption can continue, supported by both tax distortions and government spending.

If, however, the dirt income flow halts the hollowing out of modern industry will leave the Australian economy very exposed to a current account adjustment. We saw this in the global financial crisis but the flow of dirt income was restored sufficiently quickly to prevent any deep adjustment.

A second risk is that the debt accumulation simply becomes overly onerous for the underlying economy to service, also resulting in a current account adjustment. Well north of $1trillion of the debt is owned externally and household debt is a world-beating 186% of GDP so this is a real risk.

It is offset by a relatively clean public balance sheet that deploys fiscal stimulus in times of economic stress. However, in recent years, as both of the two above risks have increased, the public balance sheet has deteriorated as well, setting Australia up for a famous adjustment to end its famous bull run.

MacroBusiness covers all apposite data and wider analysis of these issues daily.


Import, export prices signal another big terms-of-trade rise

By Leith van Onselen The Australian Bureau of Statistics (ABS) has released export and import prices for the March quarter, which portends another much-needed increase in Australia’s terms-of-trade when the national accounts are released in early June. According to the ABS, export prices surged by 9.4% over the March quarter and were up by 29.1%


NSW Government cold on high speed rail pork

By Leith van Onselen NSW Premier, Gladys Berejiklian, has come out against the proposal to build a high speed train line between Sydney and Melbourne, citing doubts about the cost and benefits of a very fast train service. From The Australian: NSW Premier Gladys Berejiklian is known to be sceptical despite claims by one interested


ABC does the WA economic/property bust

By Leith van Onselen ABC’s 7.30 Report last night ran a depressing segment on the Western Australian economic/property crash. The segment features a project engineer named Brad Wright, who has seen his income slashed and has lost a tonne of money in investment properties: BRAD WRIGHT, PROJECT ENGINEER: People have had their income slashed to


Rooftop solar rockets as gas prices itself out

Well done gas cartel: Fears about rising energy prices have driven consumers and businesses to install solar panels at the fastest rate in at least a decade, lifting total national capacity to the equivalent of powering a city the size of Melbourne. New figures from the Australian Photovoltaic Institute show the country has passed 6 gigawatts of solar


Mass immigration is diluting Australia’s skills base

By Leith van Onselen Sustainable Australia president, William Bourke, penned a thought-provoking letter in The AFR arguing that Australia’s permanent skilled migration program is actually diluting Australia’s skills base: Australia’s record permanent immigration program of around 200,000 that’s diluting our skills base. Although the so-called “skilled” category is two-thirds of the annual program, the government


CPI in detail: inflation pressures well contained

By Leith van Onselen The Australian Bureau of Statistics (ABS) has released the Consumer Price Index (CPI) data for the March quarter 0f 2017, which registered another soft reading for headline inflation, with underlying inflation also remaining well in check. According to the ABS, headline CPI rose by 0.5% in the March quarter, the same


Panic, print and slash migrants

Via AFR today: Australia should halve immigration and undertake a massive transport infrastructure program funded with money effectively “created” by the Reserve Bank of Australia, says former NSW Treasury secretary Percy Allan. …He proposes having the federal government immediately slash skilled immigration from around 190,000 a year to 90,000, cooling annual population growth to 1


Greens’ immigration policy to create giant enviro-stomping Australia

By Leith van Onselen On Friday, I labelled The Greens a fake environmental party because of their support for mass immigration and a ‘Big Australia’. My growing frustration about The Greens has come about because for nearly 20 years they have failed to utter a word in protest as the federal government, under both the


Population ponzi crush-loads V/Line trains

By Leith van Onselen Remember this chart? It shows that Victoria’s population surged by an all-time high 127,500 people in the year to September 2016: And remember how the Liberal opposition pledged to shift Melbourne’s population growth to Victoria’s regions in a bid to take pressure off both housing and infrastructure in Melbourne? Well, it


Gotti upset as two people fly home on busted 457s

From doddering Gotti today: The federal government’s clamp down on overseas workers and the emotional rhetoric that goes with it has improved its voter appeal as measured in the polls. But unless immigration minister Peter Dutton gets the detail right, it will backfire dramatically and cost far more jobs than it generates. …In the detail


Mass immigration has cooked the economy’s books

By Leith van Onselen The ABC’s business editor, Ian Verrender, has penned a great piece today on how Australia’s mass immigration program has created the illusion of economic growth, while individual living standards are being eroded: Sometime in the next few weeks, there will be jubilation in the halls of Canberra when Australia assumes the


Fake Greens try to scuttle 457 visa changes

By Leith van Onselen Unbelievably, the party that is supposed to safeguard the Australian environment – The Australian Greens – is trying to scuttle the Turnbull Government’s modest changes to so-called ‘skilled’ 457 visas. From The Canberra Times: The Turnbull government’s plan to scrap the 457 skilled migration visa faces new hurdles in the Senate with


Murdoch flunkies whine about 457 visa reforms

By Leith van Onselen The Weekend Australian had a full blown whinge over the Turnbull Government’s announced changes to Australia’s temporary ‘skilled’ visa system, claiming that it will damage the economy. First up, we have political editor, Paul Kelly: The politically driven battle cry “Aussie jobs before foreigners” is a decisive change in the zeitgeist


Government right to target “job snobs”

Via The Australian: Coalition MPs with thousands of dole recipients in their electorates have hit out at “job snobs” and demanded the government target those who are “working the system” by choosing welfare over work and leaving employers to rely on foreign labour. Warning that employers, particularly in regional areas, are “competing with the welfare


NSW, VIC parasites continue to drive ponzi economy

By Leith van Onselen CommSec has released its latest State of the States report, which yet again ranks New South Wales and Victoria on top due largely to a combination of strong population growth, housing, and debt-fueled consumption: Each quarter CommSec attempts to find out by analysing eight key indicators: economic growth; retail spending; business


Australia is trading away control of its borders

By Leith van Onselen Immigration Minister Peter Dutton has confirmed that the Turnbull Government’s curbs on temporary overseas labour will not apply to existing free trade agreements (FTAs). Dutton says the FTAs in question are those with China, Japan and South Korea. From The AFR: Immigration Minister Peter Dutton confirmed on Thursday that the FTA’s,


Urban sprawl does not endanger Australia’s food bowl

By Leith van Onselen One of the common arguments against ‘urban sprawl’ is that it endangers Australia’s food bowl – the food producing farms that sit beyond the urban fringe of our major cities. In recent times we have witnessed alarmist reports from various bodies, such as the University of Technology Sydney, warning that Sydney


Tim Colebatch schools Peter Martin on immigration

By Leith van Onselen Former economics editor with The Age, Tim Colebatch, yesterday published a brilliant article supporting the federal government’s crackdown on temporary work visas, arguing that Australia’s current mass immigration program is destroying employment prospects for the incumbent population. From Inside Story: Between 2008 and 2016, in net terms, the Australian labour market


ACCC: Energy crisis enters “worst-case scenario”

Via The Australian: Australian Competition & Consumer Commission chairman Rod Sims said yesterday the situation in the east-coast gas market had deteriorated in the past year, leaving businesses faced with a “worst-case scenario’’. Mr Sims told The Australian the study commissioned by Malcolm Turnbull this week, after the gas industry failed to offer its own