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.

1

Deloitte: Retail benefited from closed borders

Deloitte’s weekly economic briefing notes that a key reason why retail sales rebounded so strongly after shutdowns is because “there wasn’t much else that households could spend on, especially with both international and interstate travel off the cards”. However, Deloitte also sees the sales “windfall” as temporary and believes that 2021 will see a “transition

8

ABS: unemployment falls to 5.8%, jobs recover to pre-COVID level

The ABS has released labour market data for February, which revealed that Australia’s unemployment rate fell to 5.8% (from 6.3% in January) following strong jobs growth of 88,700: Key statistics Seasonally adjusted estimates for February 2021: Unemployment rate decreased to 5.8%. Participation rate remained at 66.1%. Employment increased to 13,006,900. Employment to population ratio increased

12

Stranded Aussies rot on vine as foreign fruit pickers fly in

The way our governments treat Australians stranded abroad is a disgrace. One year on from the pandemic and there are still tens-of-thousands of Australians stuck overseas and unable to return home due to: 1) prohibitive arrivals caps and quarantine limits; and 2) extortionately expensive airfares and quarantine costs. For months we have witnessed our state

11

Australia stops importation of PNG farm workers

Last week, Cairns’ Hospital was thrown into a ‘code yellow’ emergency after receiving an influx of COVID infected patients from Papua New Guinea (PNG). The six PNG patients had flown in to work as seasonal farm labourers and became infected while quarantining. Over the past month, COVID-19 infections have rocketed in PNG (see below chart),

2

Leading index rocket heads back towards earth

Via Westpac’s Bill Evans The growth rate in the Index continues to hold comfortably in positive territory indicating that growth through much of 2021 will be above trend. That outlook is consistent with Westpac’s views. Indeed, we recently lifted our growth forecast for 2021 to 4.5% from 4.0% – well above trend. From our perspective

43

Net immigration still negative

The Australian Bureau of Statistics (ABS) yesterday released Overseas Arrivals and Departures data for January, which confirmed that net migration into Australia remains negative. There have been 20,800 net permanent & long-term departures since the pandemic hit in March 2020, representing the first time net arrivals have been negative since the series first began in

7

Why quarantine needs to be moved out of hotels

For months MB has called for quarantining of international arrivals to be shifted out of dense city hotels to low density accommodation in regional areas. The logic is obvious: packing overseas arrivals into hotel rooms with shared ventilation and corridors greatly increases the risk of spreading the virus among workers, guests and the wider community.

4

$12b in tax cuts will be saved not spent

Treasurer Josh Frydenberg says the $9 billion worth of income tax cuts in 2020 have boosted households’ balance sheets and consumer confidence. He adds that households will benefit from a further $12 billion worth of accelerated income tax cuts by the end of September: [Frydenberg said] tax cuts had already “helped to boost household balance

3

How governments butchered Gonski school funding reforms

The 2011 Gonski report was aimed at cleaning up Australia’s convoluted and opaque school funding system, as well as establishing an needs-based funding model. It proposed to introduce a “base rate” level of funding per student, known as the Schooling Resource Standard (SRS), alongside extra loadings based equity considerations. However, the former Labor Government failed

64

Morrison’s dodgy vaccine rollout falls apart

Oh dear. The Morrison Government’s vaccine strategy is on verge of collapse today as government MPs jump like rats from a sinking ship. Senator Matt Canavan has called for the rollout to be suspended. This follows last night’s news that both France, Germany and Spain have canned their rollouts. As noted yesterday, the European polity

23

Aged Care royal commission’s findings “manifestly unfair”

Noel Whittaker has done a good job dissecting the Aged Care Royal Commission’s (RC) findings, which seeks to dramatically increase taxes of the working-aged population to fund an additional $10 billion of aged care. According to Whittaker, there are two main funding proposals put forward by the (RC): Commissioner Lynelle Briggs wants everybody to pay

1

Bosses pressure senators to pass wage-crushing IR reforms

Ten employers’ groups have issued a joint statement urging Senate crossbenchers to support the federal government’s industrial relations omnibus bill. They warn that failure to pass the legislation “will increase uncertainty and stifle business confidence at the worst possible time — just before the JobKeeper scheme ends”. However, ACTU secretary Sally McManus says the employers’

27

Liberal MP: Reboot immigration to fix “unprecedented” skills shortages

The Australian’s Patrick Commins has penned a ludicrous article claiming that Australia needs to quickly reboot its mass immigration program to ease “unprecedented” skills shortages and fuel the nation’s economic rebound. The article is centred around claims from Liberal MP Julian Leeser that Australia is “facing a shortage of skilled labour almost unprecedented in our

10

Forced urban density is making cities hotter

The ABC has published a concerning report, based on research from the Australian Conservation Foundation, warning that lost green space through urban consolidation is making our cities hotter by causing ‘heat islands’: Dr Richardson highlighted Western Sydney as one urban region at risk of becoming “unliveable”. “If Western Sydney hits 50 degrees Celsius and then

7

Senate to block wage-crushing IR reform

Independent senator Rex Patrick believes there is little chance that the upper house will pass the federal government’s industrial relations omnibus bill in the next week. He says it could be passed in May or June, but only with substantial amendments. Meanwhile, One Nation will push for 12 amendments to the bill in return for its

12

CBDs are an archaic concept that should die

The federal government’s new COVID-19 support package has been criticised for focusing on airlines and regional destinations, at the expense of the nation’s central business districts (CBD). Accommodation Association CEO Dean Long says the government has abandoned CBD hotels, and he contends that they need immediate support. Long has reiterated his call for a new

2

Tourism industry demands wage subsidies

The Tourism & Transport Forum has welcomed the federal government’s decision to subsidise 800,000 airfares, but warns that it will not be sufficient to preserve jobs across the broader tourism industry. It has called for a dedicated wage subsidy to come into effect until international travel resumes. It is a theme echoed by Cairns Adventure

3

Universities cry poor as they steal from workers

Late last year, The ABC ran an alarming article on the widespread wage theft taking place at Australia’s universities, with the National Tertiary Education Union (NTEU) claiming “wage theft [was]… rampant across Australian universities” after three quarters of academic staff surveyed claiming they were being underpaid: NTEU carried out a survey of 2,174 professional and academic

3

Australia falls way behind vaccination targets

Even before it started, Australia was lagging the developed world badly in its COVID-a9 vaccine rollout, owing to Morrison Government mismanagement: Now, it is becoming clear that the late rollout is missing the federal government’s initial target of vaccinating four million Australians. About 106,000 doses of Pfizer’s COVID-19 vaccine have been administered nationally since the

19

ScoMo gives half-price airfares to save tourism

The Morrison Government will today reveal details of a $1.2 billion stimulus package for the aviation and tourism sectors. In particular, the government will subsidise airfares for domestic travellers who visit regions that have been hard hit by the loss of international tourists, while Qantas and Virgin Australia will receive ‘retention payments’ to ensure that

0

Charting the economy’s rebound from COVID

Roy Morgan Research has published a useful set of charts, compiled from its surveys, tracking the Australian economy’s rebound from the COVID-19 pandemic. First, the ANZ-Roy Morgan consumer confidence index has rebounded from a low of 65.3 in March 2020 to 111.9 as of 6-7 Mar 2021: Second, Roy Morgan’s business confidence index has rebounded