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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NSW records another 882 COVID cases

NSW Health has reported another 882 locally acquired COVID cases over the past 24 hours: NSW recorded 882 new locally acquired cases of COVID-19 in the 24 hours to 8pm last night. pic.twitter.com/HPMmojjrc9 — NSW Health (@NSWHealth) August 27, 2021 Two more people died of COVID – a man in his 60s and a man

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Frydenberg neuters ASIC into Clayton’s regulator

Back in April, Treasurer Josh Frydenberg neutered ASIC by appointing former banking lawyer Joseph Longo as chairman of ASIC and directing him to support the economic recovery from the pandemic rather than enforcing financial system conduct: …the “wagyu and shiraz” responsible lending case against Westpac… became a particular point of friction between Frydenberg and [former

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Victoria records another 79 new COVID cases

Victoria has recorded another 79 locally acquired COVID cases over the past 24 hours: Reported yesterday: 79 new local cases and no new cases acquired overseas. – 33,611 vaccine doses were administered – 50,535 test results were received More later: https://t.co/lIUrl1hf3W#COVID19Vic #COVID19VicData [1/2] pic.twitter.com/U7MrLCjRVY — VicGovDH (@VicGovDH) August 26, 2021 Of the 79 locally-acquired cases,

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NSW jobs market smashed by lockdown

The ABS today released Payroll Jobs and Wages data for the week ended 31 July, which showed that Sydney’s lockdown has badly impacted the state’s job market. Nationally, payroll jobs fell by 2.0% over the week whereas wages fell 2.7%: The decline in jobs and wages was driven by NSW: The next chart shows the

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Tax wealth to fund Australia’s ageing population

The Australia Institute (TAI) has released a new paper questioning the efficacy of Treasury’s Intergenerational Report (IGR) and why it ignored wealth and capital gains as a potential source of tax revenue to fund an ageing population: Since September 198818 series net worth has been growing at 7.5 per cent per annum and, as mentioned

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Can’t quarantine stranded Aussies. Can quarantine farm slaves.

The way our governments treat Australians stranded abroad is a disgrace. 18 months 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 more than a year we have

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Labor pushes to expose JobKeeper rorters

The AFR’s Joe Aston has continued his stellar reporting of JobKeeper rorting by Australian companies: On Wednesday, listed trucking company K&S Corporation released its full-year accounts, helpfully breaking out the nearly $30 million of JobKeeper it banked in calendar 2020, only $344,000 of which topped up stood-down workers (remember, trucking has been uninterrupted by the

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Deloitte: New stimulus programs a fraction of last year’s

It is my firm view that the Australian economic recovery after lockdowns end will be far less spectacular than last time due to: The virus lingering in the community and likely accelerating once we reopen; and Much less stimulus this time around. Regarding the second point around stimulus, Deloitte has estimated that fiscal support during

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Victoria’s COVID outbreak surges by 80 cases

Victoria has recorded an outbreak high 80 local COVID cases in the past 24 hours: Reported yesterday: 80 new local cases and no new cases acquired overseas. – 33,932 vaccine doses were administered – 56,248 test results were received More later: https://t.co/lIUrl1hf3W#COVID19Vic #COVID19VicData [1/2] pic.twitter.com/mca8o1PZIW — VicGovDH (@VicGovDH) August 25, 2021 Of the 80 local

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Aussie graduates swept aside by international student tsunami

Earlier this week, Professor Suresh Cuganesan – deputy dean at the University of Sydney Business School – called for the federal government to give international students even greater post-study work rights as an incentive to encourage greater enrolment numbers: From the outset we need to signal that Australia is focused on the longer-term wellbeing and

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Aussie CFO sentiment surges to new high

Deloitte 10th biannual CFO Sentiment survey, released in February, revealed that Australian CFO sentiment surged to a decade high on the back of the economy’s “V-shaped” recovery: Yesterday, Deloitte released its 11th CFO Sentiment survey, with confidence rising another nine percentage points from six months earlier with 84% of CFOs feeling optimistic or highly optimistic

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Lockdowns weigh on Aussie consumer confidence

The ANZ-Roy Morgan consumer confidence index has been released for last weekend with confidence nationally rising 0.5% to 101.6 points – still down heavily from April’s high. The rebound in confidence was driven by strong increases in South Australia and Western Australia, as well as a smaller rise in Queensland after Brisbane emerged from lockdown.

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Victoria records another 45 COVID infections

Victoria has recorded another 45 locally acquired COVID cases over the past 24 hours: Reported yesterday: 45 new local cases and no new cases acquired overseas. – 31,629 vaccine doses were administered – 53,321 test results were received More later: https://t.co/lIUrl1hf3W#COVID19Vic #COVID19VicData [1/2] pic.twitter.com/9r4LdG2c1T — VicGovDH (@VicGovDH) August 24, 2021 Of the 45 local cases,

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Has Australia backed the wrong vaccine?

Chris Joye made the below potent observations in Friday’s AFR regarding the protection offered by the Pfizer COVID vaccine against Delta strain: The latest research from Oxford University finds that in the UK, the efficacy of Pfizer against delta halves to less than 50 per cent after four months. Indeed, at this juncture, researchers believe that

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NSW records another 753 COVID cases

NSW Health has recorded another 753 locally acquired COVID cases over the past 24 hours: NSW recorded 753 new locally acquired cases of COVID-19 in the 24 hours to 8pm last night. pic.twitter.com/S1yMf7bHD2 — NSW Health (@NSWHealth) August 24, 2021 Of these locally acquired cases, 134 are linked to a known case or cluster –

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Victoria records another 50 new COVID cases

Victoria has recorded another 50 locally acquired COVID cases over the past 24 hours: Reported yesterday: 50 new local cases and 1 new case acquired overseas (currently in HQ). – 29,810 vaccine doses were administered – 48,424 test results were received More later: https://t.co/lIUrl1hf3W#COVID19Vic #COVID19VicData [1/2] pic.twitter.com/62uLKpu7zY — VicGovDH (@VicGovDH) August 23, 2021 Of the

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Get ready for the great immigration scab grab

As reported yesterday, the Morrison Government will on 30 September launch its Agricultural Visa, which will allow regional businesses across the horticultural, meat processing, fisheries and forestry sectors to hire indentured migrant labour from 10 South-East Asian nations with the promise of permanent residency if they commit to working beyond three years: “This is about

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Inflation is up but gold is down for the year, what is up with that?

By Daan Smit Inflationary pressures in the United States and other corners of the world have been accelerating this year as a result of supply bottlenecks, cash-flooded economic systems, and suppliers’ struggles to push their output volumes near where they were before the pandemic to catch up with pent-up demand. However, somehow counterintuitively, the price

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Grattan: Reduce industrial emissions now to reach net zero in 2050

The Grattan Institute has released a new report calling on Australian governments to act now to curb industrial emissions if they want to achieve net zero by 2050. Below is the Overview combined with key graphics: Governments around the world are moving to ‘net zero’, to limit the impacts of climate change. All Australian state

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NSW COVID cases push past 11,000

NSW Health has recorded another 818 locally acquired COVID-19 cases over the past 24 hours: NSW recorded 818 new locally acquired cases of COVID-19 in the 24 hours to 8pm last night. Of these locally acquired cases, 120 are linked to a known case or cluster – 94 are household contacts & 26 are close

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Big Australia incompatible with nation’s scarce water supply

Recall that the Australian 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

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Victoria’s COVID outbreak grows out of control

Despite harsher lockdown restrictions and Melburnians enduring their 204th day of lockdown, Victoria’s Delta outbreak continues to grow, with another 71 new local cases recorded over the past 24 hours: Reported yesterday: 71 new local cases and no new cases acquired overseas. – 22,191 vaccine doses were administered – 46,446 test results were received More