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.

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Aussie university vice chancellors still grossly overpaid

Despite the cut in international students, salaries of university vice-chancellors remain bloated, according to new analysis by Fairfax: Unbelievably, some vice chancellors scored pay rises in 2020 at the same time as revenues tanked, rank and file staff were retrenched or had their wages stolen, and students were pushed into sub-standard online teaching. As shown

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ACCI contradicts itself on Aussie labour market

You have got to love the contradictory statements coming from the Australian Chamber of Commerce and Industry (ACCI), which continues to talk with a forked tongue on the labour market. The ACCI recently sent a submission to the Morrison Government’s migration program review whereby it demanded easier access to foreign workers to ameliorate purported crippling

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Australia’s fake education ‘exports’ exposed again

MB has comprehensively debunked Australia’s claimed $40 billion of education exports, which are wildly exaggerated. In a nutshell, the majority of education ‘exports’ comes in the form of expenditure on goods and services in Australia, as explicitly acknowledged in a recent Mitchell Institute report: The majority of the $20 billion loss of economic value is

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Memo to hospitality industry: it’s a “labour market”

For months we have witnessed Australia’s hospitality industry whine over labour shortages and lobby the federal government to give it easier access to foreign workers. At the same time the hospitality industry contradictorily called for an extension of JobKeeper and has lobbied to freeze the minimum wage. We are seeing the same shenanigans over the

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Morrison Government must incentivise state tax reform

NSW has recently flagged plans to replace stamp duty with an annual land tax. But NSW Treasurer Dominic Perrottet contends it will be “tough fiscally” to pursue stamp duty and broader GST reform without the help of the federal government: “It makes sense for them to support [it]. Things can be politically challenging but they don’t

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Australian job postings soften

Indeed economist Callam Pickering has updated his job postings data to 4 June 2021, which have softened from recent highs: Victorian job postings have softened in recent weeks and are a bit weaker than the national average, up 38.7% on their pre-COVID level. Job postings across the rest of the nation are also down from

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Labour shortage drives productivity-lifting automation

A recent report from the National Agricultural Labour Advisory Committee admitted that Australian farmers’ extreme reliance on cheap migrant labour is having detrimental productivity impacts by preventing farms from adopting new methods and investing in automation: In many ways, Australia is at a crossroads. Either its enterprises go all out to modernise by learning and

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Lockdown plunges Melbourne CBD movements below 20%

Roy Morgan Research has released new data on CBD people movements, which reveals that all CBDs across the Australia are experiencing significantly lower traffic levels than pre-COVID: Not surprisingly, Melbourne’s CBD has been hit hardest following four lockdowns, with the current lockdown pushing people movements to only 19% of ‘normal’ pre-COVID levels. My view is

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Small business payroll jobs fail to launch

The ABS has released its Weekly Payroll Jobs and Wages in Australia data for the week ending 22 May 2021, which reported that payroll jobs are now tracking 2.6% above their pre-Covid level, whereas total wages are tracking 3.1% higher: The next table shows the breakdown across jurisdictions, which shows all states & territories reporting

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Morrison COVID fail unravels consumers

Call it lockdown if you want. What it really is is Morrison Government failure on vaccines and centralised quarantine. Via Westpac: • The Westpac-Melbourne Institute Index of Consumer Sentiment fell 5.2% to 107.2 in June from 113.1 in May. The Index has now fallen by 9.7% over the last two months. We think the initial

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COVID achieves what urban planners could not

Policy makers and urban planners have for generations attempted and failed to diversify Australia’s economic activity and settlement away from the cities. These same central planners also regularly touted so-called ’20-minute cities’ where people can live, work and socialise, only for commute times to grow as workers shunted into the CBD on crowded trains and

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Morrison’s post-iron ore economic plan comes from Nauru

Australia’s evolving Cold War 2.0 circumstances continue with stunning speed. The personality-disordered PM is on the hustings today with a new round of China-bashing: Morrison has warned about an emerging struggle between authoritarianism and liberalism. The Indo-Pacific is its epicentre with the rising risk of conflict. He aims to reform the WTO to fight economic

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Should we fret the household debt?

Judo Bank CEO Joseph Healy yesterday expressed concern about the “almost uncontrollable rise in household debt” across Australia. This was 180% of disposable income at the end of 2020, according to data from the Reserve Bank. Healy is particularly concerned about the growth in mortgage lending, arguing that it is “foolhardy” to assume that interest

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Judith Sloan takes axe to edu-migration rent seekers

The Australian’s Judith Sloan has penned a terrific article explaining why the “Tidal wave of overseas students must stop”. Sloan claims that senior administrators at Australia’s universities are relentless rent-seekers and will take every opportunity to lobby the federal government to open the nation’s international borders to foreign students. Instead, Sloan insists that any decision

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Survey: 95% want to work from home

A report by Bain & Company and Chief Executive Women has found that 95% of employees would take up a flexible work arrangement in the next three years if it were offered by their employer. The overwhelming majority of employers also said that they had maintained or boosted productivity during the past 15 months of

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It’s called a progressive tax system for a reason

Shock horror! Fairfax is reporting that higher income earners pay the most tax, with Australia’s “Budget reliance on high and middle income earners” reportedly growing: The report draws on data from the Australian Tax Office (ATO) showing that nearly 14.7 million individuals paid a combined $213 billion worth of income tax during the 2018-19 financial

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Overheated NAB survey screams steep interest rate hikes

The NAB business survey used to be a quite useful forecaster of GDP and its segments. These days it’s become more like a PMI, only useful for directional rather than positional judgements. To wit, this is an unprecedented boom across all metrics: Capacity utilization has been pushed the highest measures in living memory which would

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Canada to open to vaccinated tourists

As Morrison’s Prison Island falls ever further behind in the vaccine race, the northern hemisphere is beginning to open up to tourism. Europe is preparing to launch vaccine passports. Domestic US tourism is exploding higher. Now Canada is leading the reopening of borders to the vaccinated: Wokester Justin Trudeau is considering easier border controls. The

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Inflation expectations off the lows

Roy Morgan has released its inflation expectations survey for May, with Australians expecting inflation of only 3.7% over the next two years – well below the RBA’s inflation target of 2% to 3% inflation annually: However, Inflation Expectations are now tracking well above where they were a year ago (3.3%). Inflation Expectations are now 1%

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Australia’s low wage growth is by design

Over the weekend, ABC business reporter, Gareth Hutchens, published an article suggesting that “stagnant wages” and “labour market ‘slack’” are part of the “federal government’s plan”. Hutchens sites the collapse in wage growth over the past decade or so: He then notes that the mass immigration policy pursued by the federal government meant that despite

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Aussie company profits rocket 11% during pandemic

Last week’s national accounts confirmed that Australian corporations have made like bandits during the coronavirus pandemic with total gross operating profits soaring by 11% in the year to March 2021 in rolling annual terms: Company profits were obviously boosted by government stimulus, in particular: the $34 billion Cashflow Boost – a gigantic corporate welfare scheme

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Construction loans dive on HomeBuilder’s end

Friday’s lending indicators data posted a sharp decline in loans for new dwelling construction, which fell for the second consecutive month by a combined 21% from February’s peak: Nevertheless, they remained 72% higher year-over-year. According to the Housing Industry Association: “This is the first ABS data to show that we are past the peak in

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Morrison quarantine stupidity is the only virus threat

Despite having constitutional responsibility for quarantine, and having the nation’s deepest pockets, the Morrison Government continues to pass the buck. At Friday’s National Cabinet meeting, the federal government again rejected Queensland’s sensible proposal to construct a mining-style quarantine facility near Toowoomba because it is supposedly is not located near an international airport, is too far