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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The slow painful death of the Australian Treasury

When I and other graduates arrived at the Australian Treasury in 2003, we were inducted by Secretary Ken Henry and his deputy secretaries who drilled into us the Treasury’s rich history of giving “frank and fearless” advice to the federal government, based upon rigour and evidence. We were told to examine issues rationally with a

4

Grattan: Young Aussie men should ditch university for VET

The Grattan Institute has released a new report, entitled Risks and rewards: when is vocational education a good alternative to higher education?, which recommends that male students with lower school results would be better off doing vocational education and training (VET) rather than going to university: Vocational diplomas in construction, engineering, and commerce typically lead

8

Retail declares Recessionberg tax cut stimulus a dud

Hoocoodanode? Via Domain: A broadly anticipated ‘sugar hit’ has failed to combat bitter trading conditions for Australian retailers, which could spell bad news ahead of full-year results later this month. But for cult-favourite ice-cream seller Messina, the only sugar hits in sight are the ones it’s serving up to customers. “It’s made no difference to

29

Subway joins the wage thieves

Via Domain: Subway has said it could terminate franchisees that do not pay staff properly after it emerged the US sandwich giant is under investigation by the Fair Work Ombudsman over underpayment of local employees. The troubled franchise is under pressure after an investigation by The Age and Sydney Morning Herald revealed it is closing

23

RBA fail: Migrant visa boom crushing Australian wages

In testimony on Friday to the House of Representatives Standing Committee on Economics, Reserve Bank of Australia (RBA) governor, Phil Lowe, blamed increasing labour supply from females and older Australians for holding down Australian wages: What’s happened is that increased demand for labour has been met with more labour supply, especially by women and older

24

Hong Kong international students intimidated by angry Chinese

The fallout from last month’s protests at the University of Queensland, which saw nationalist Chinese students attack Hong Kong students protesting in favour of independence, continues to fester across Australia’s universities. In the weeks following these protests, we have witnessed pro-Hong Kong Lennon boards across Australia’s university campuses, which offer messages of support in favour of

18

Calombaris comeback continues

Rupert Murdoch’s Herald Sun loves a bit wage theft. It’s good for profits after all: Shannon Bennett has lent his support to under fire chef George Calombaris, saying the former MasterChef judge will bounce back from his latest crisis. Bennett, who lives in Byron Bay, was yesterday at his Vue de Monde restaurant to launch

10

VIC Government dramatically lifts Melbourne’s population projection

Over many years, Melbourne has lead the nation’s population growth, adding a ridiculous 1.3 million people (a 36% increase) in the 14 years to June 2018: When I worked at the Victorian Treasury in 2006, the State Government had just released “Melbourne 2030”, which projected that the city’s population would reach 5 million people by

32

Morrison Government conceals migrant stampede behind bridging visas

Last year, the Morrison Government announced that it would cut Australia’s non-humanitarian permanent migrant intake by 20,000 to 160,000, in order to “relieve congestion in the cities”. From the outset, MB labelled this a ‘fake cut’, based on the fact that both temporary migration and net overseas migration (NOM) continues to increase, as illustrated in the

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Chinese international students strongarm universities

The aggression by Chinese international students at Australia’s universities continues to build. In the wake of recent violence inflicted against Hong Kong students at the University of Queensland, as well as the widespread vandalism of Hong Kong Lennon boards across Australian university campuses, a Chinese student group has demanded the University of Tasmania remove pro-Hong

11

Victoria to become “powerhouse of population and property”

“Unabashed supporter of a bigger Australia”, Bernard Salt, has spruiked new projections for Victoria’s population which he claims will make the state a “powerhouse”: Victoria’s Department of Environment, Land, Water & Planning released new projections in July showing a powerhouse of population growth and property (and infrastructure) demand unfolding over the coming generation… The previous

3

Demand-driven university delivers Australia a “skills crisis”

The 2008 Bradley review into higher education was concerned that the strict allocation of undergraduate university places over the prior 30 years would lead to a shortage of graduates for the so-called “knowledge economy”. Accordingly, it recommended the uncapping of university places and the implementation of the demand-driven system, which was implemented by the Gillard

6

Household financial confidence hits new lows

Via Martin North: We are releasing the latest edition of our household financial confidence index today. This is an extract from our 52,000 rolling household surveys, were we ask about their level of confidence, compared with a year back. Any post election bounce is well past, as the two interest rate cuts are seen as

23

IT Start-ups handed migrant visa slaves

The Morrison Government has announced that it will make the Global Talent Scheme permanent after a 12-month trial, thus permitting start ups to employ cheap migrant workers: Under the program, two visa streams are available to fill specialised positions. Established businesses with a turnover of $4 million can apply for up to 20 visas for

10

Infrastructure ain’t going to save shit

Via an obtuse Deloitte: Deloitte Access Economics Investment Monitor: infrastructure to the rescue 8 August 2019:  The slowdown in the global economy is flowing through to Australian investment conditions. Releasing the latest edition of Deloitte Access Economics’ quarterly Investment Monitor, Deloitte Access Economics partner and report lead author, Stephen Smith, said: “Measures of global business

23

Report: Sydney and Melbourne commute times to balloon

The Regional Australia Institute (RAI) has released a new report warning that Sydney and Melbourne are facing dramatic increases in commute times if their populations are allowed to expand as projected by the Australian Bureau of Statistics (ABS): For most cities, ABS and state government projections have been released out to the mid-2030s. Our modelling

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More Chinese international student aggression

Over recent weeks, Chinese international students have been involved in incidents suppressing pro-Hong Kong protests. Late last month, violence erupted at the University of Queensland when a group of Hong Kong secessionist protestors were attacked by Chinese nationalist students. Hong Kong students were assaulted and reportedly subjected to further harassment and intimidation in the days following. Auckland

2

Thinktank: Australia has too much uni and not enough TAFE

The Mackenzie Institute believes that Australia’s economy has become “hollowed out” by a misguided belief that universities must be research intensive, as well as policies that preference higher education over vocational alternatives: In a paper coinciding with its launch, the institute condemns the 2008 Bradley review – which spawned Australia’s recently abandoned demand-driven system of

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Earth to Recessionberg. Your economy is falling apart

Earth to Recessionberg. Earth to Recessionberg. Earth to Recessionberg. Your economy is falling apart. Come in Recessionberg! Nobody is listening. Perhaps nobody is home. Recessionberg is too busy today reassuring “quiet Australians”: Josh Frydenberg has urged Australians not to overreact to the turmoil on world markets as he moved to smooth concerns the US-China trade

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Aussie construction PMI enters free fall

Don’t say we didn’t warn you, Recessionberg. Via AIG: New orders are a dark giggle. Houses say no to the ScoMo miracle: Apartments are stuffed: And my personal favourite is the Recessionberg special, collapsing infrastructure: Leading to this: And this: I guess tradies are not “quiet Australians”. Full report.