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.


Farmers: visa slaves better than paying a living wage

Amid the conga-line of evidence showing that temporary migrants have been ruthlessly exploited on Australia’s farms, which has frequently been labelled “modern slavery”, the Australian Workers Union (AWU) has lodged an application with the Fair Work Commission to amend the Horticulture Award to guarantee a minimum casual rate of pay for all farm workers. As


Forget vaccines. House prices cure COVID!

That’s the message from today’s Westpac consumer sentiment release: • The Westpac-Melbourne Institute Index of Consumer Sentiment rose by 1.5% to 108.8 in July from 107.2 in June. The survey was conducted over the week of July 5–9, during the lock-down in Sydney and restrictions in regional NSW but before the tightening of restrictions announced


NSW records 97 new COVID cases

NSW Health has recorded 97 new local COVID cases over the past 24 hours: NSW recorded 97 new locally acquired cases of COVID-19 in the 24 hours to 8pm last night. — NSW Health (@NSWHealth) July 14, 2021 Of the 97 locally acquired cases reported to 8pm last night, 70 are from South Western


Immigration moves back into positive

The Australian Bureau of Statistics (ABS) has released Overseas Arrivals and Departures data for May 2021, which confirmed that net migration into Australia has moved back into positive. There were a net 3,480 permanent & long-term arrivals in May, which followed April’s 270 net arrivals: Nevertheless, there have been 19,810 net permanent & long-term departures


Consumer confidence brushes aside Sydney virus outbreak

The ANZ-Roy Morgan consumer confidence index rose 2.0% to 110.0 points in the weekend of 11-12 July despite the worsening virus outbreak in Sydney and the extension of the city’s hard lockdown. The key movements in the sub-indices were as follows: With Brisbane, Perth and Darwin emerging from their snap lockdowns, consumer confidence rebounded 2.0%


JobKeeper 2.0 the right policy for Sydney

The federal and NSW governments have responded to the growing outbreak in Greater Sydney by agreeing to provide a combined $5.1 billion in COVID-19 disaster payments for businesses and individuals who have been affected by the lockdown. The funding commitment is based on expectations that the lockdown will be extended by at least four weeks. Prime


Australia’s reopenign boom ends in lockdown

Somehow I missed the NAB business survey for June released yesterday. It tells a stark story of the end of the reopening boom: The June survey was conducted through the period of rising cases in NSW and the early part of the subsequent lockdowns both there and in other states. Unsurprisingly, business confidence has taken


Australia’s cities cannot cope with projected population growth

Treasury’s latest Intergenerational Report (IGR) projects that Australia’s population will grow by a whopping 13.1 million people (~50%) over the next 40 years to 38.8 million people. This is the equivalent to adding another Sydney, Melbourne and Brisbane to Australia’s existing population. Moreover, 74% of this growth will come directly from net overseas migration (NOM), which


CEO pay takes much needed haircut

An Australian Council of Superannuation Investors survey has revealed that the CEOs of ASX 100 companies received no annual bonus in 2020, double that of the previous year. They included Alan Joyce of Qantas, Marnie Baker of Bendigo & Adelaide Bank and Susan Lloyd-Hurwitz of Mirvac. Ed John from the ACSI says that the pandemic


Treasury’s IGR immigration analysis doesn’t add up

Dr Judith Sloan was the Commissioner in charge of the Productivity Commission’s 2006 review into the Economic Impacts of Migration and Population Growth. Therefore, she speaks with authority on the subject. Today Dr Sloan has torn apart the false claim in Treasury’s Intergenerational Report (IGR) that increasing immigration is good for the nation’s finances. This


Inflation expectations are bouncing back

Roy Morgan’s inflation expectations survey for June has been released which reports that Australians expected inflation of 4% over the next two years, up 0.3% and the highest Inflation Expectations since the pandemic began. Inflation Expectations are also now 0.8% higher than they were a year ago – the biggest year-over-year increase since the series


More proof Australia’s ‘skilled’ visa system is a giant fraud

For years we have been told that Australia’s visa system is world-leading because it provides the economy with vital skills and plugs so-called critical labour shortages. This view is generally based on a superficial examination of Australia’s permanent migration program, whereby the ‘skilled’ stream accounted for around two-thirds of the total intake pre-COVID: The reality


Decades of mass immigration haven’t stopped skills shortages

ABC’s business editor, Ian Verrender, has recently done a superb job debunking the business lobby and Coalition’s incessant claim that Australia is experiencing chronic skills shortages, thereby necessitating the large-scale importation of foreign workers (see here). Today Verrender has repeated the dose, questioning why purported skills shortages have persisted across the economy despite decades of


Farm visa slaves the new bin chickens

Over many years we have witnessed a conga-line of evidence showing that temporary migrants have been ruthlessly exploited on Australia’s farms, which has frequently been labelled “modern slavery”. In March the federal government also released a 327-page report from the National Agricultural Labour Advisory Committee, which explicitly admitted that the agricultural industry’s overreliance on cheap


Productivity Commission: Work from home more efficient

The head of the Productivity Commission, Michael Brennan, has thrown his support behind the shift to remote work (working from home), stating that it is probably making us more productive: “On balance, I think there’s good grounds to be optimistic when it comes to the overall impact,” the Productivity Commission’s chair, Michael Brennan, told The


NSW covid cases surge by 112

NSW Health has recorded another 112 new COVID infections across the state over the past 24 hours: NSW recorded 112 new locally acquired cases of #COVID19 in the 24 hours to 8pm last night. — NSW Health (@NSWHealth) July 12, 2021 Of the 112 locally acquired cases reported to 8pm last night, 84 are


Immigration robber barons strike back with propaganda

The AFR hit back hard against RBA governor Phil Lowe’s admission last week that Australia’s mass immigration program pushed down wage growth. The robber baron’s paper of choice published two spruik pieces over the weekend (here and here) ‘debunking’ Lowe’s argument, which were centred largely around former RBA board member Warwick McKibbin’s view that strong


COVID State of Origin: NSW vs VIC

Yesterday, NSW recorded 77 new local COVID cases taking the state’s total active infections to 514: With NSW cases rising fast, there has been a lot of media commentary comparing NSW’s latest COVID outbreak to Victoria’s Winter-Spring outbreak last year, which saw Melbourne locked-down for 14 consecutive weeks. In order to add a data perspective


QLD ‘biggest loser’ of COVID pandemic

Roy Morgan Research has released analysis showing that Queensland’s labour market has been hardest hit by the COVID pandemic: Queensland appears as the big ‘loser’ of the COVID-19 pandemic so far with total unemployment and under-employment in the sunshine state now at 23.5% of the workforce in the June quarter 2021, an increase of 6.6%


John Hewson’s mea culpa: Immigration crushes wage growth

It is hilarious watching economists and politicians finally acknowledge that Australia’s mass immigration program has crushed Australian wage growth – something that MB has argued for nearly a decade. The latest to have a mea culpa is economist and former Liberal leader John Hewson, who posted the below today via Twitter: Staggering that it has


NSW records another 44 COVID cases

Things have gone from bad to worse in NSW, with the state recording another 44 local COVID cases overnight taking the total case count to around 420: NSW recorded 44 new locally acquired cases of COVID-19 in the 24 hours to 8pm last night. — NSW Health (@NSWHealth) July 9, 2021 Of the 44


Feds lie back to RBA: ‘Immigration lifts wages’

The muppets at the Department of Home Affairs were obviously taken aback by RBA governor Phil Lowe’s admission that immigration holds down wages, firing back with research supposedly debunking the RBA’s claim: The Department of Home Affairs, which oversees Australia’s immigration program, said studies had “consistently found no statistically significant relationship between wage growth and


Macrobated RBA fires immigration cannon at Canberra

Earlier this week we argued that the Reserve Bank of Australia (RBA) was fighting the Morrison Government on wages, given recent comments from governor Phil Lowe that low immigration is required to achieve the Bank’s goal of lowering unemployment and lifting wage growth. Yesterday, Governor Phil Lowe took his wages jawboning to another level in