PERHAPS it is the drought mentality. Australians know better than most how fleeting success can be. Ours is an economy dependent to a large degree on forces outside our control: the weather, commodity prices, the rise and fall of empires.
PERHAPS it is the drought mentality. Australians know better than most how fleeting success can be. Ours is an economy dependent to a large degree on forces outside our control: the weather, commodity prices, the rise and fall of empires.
We have been in economic favour during commodity booms and out of favour when the world goes bust. Rains give way to droughts, mining booms to inflation and recession.
It is no surprise Australians have developed a cautious attitude to success, a knowledge that it never pays to count your chickens or get too smug - for everything could be gone tomorrow. When it helps us to plan for harsher times, this attitude has benefited us. It has helped us accept difficult reforms to underpin future growth, such as floating the currency, dismantling tariffs and decentralising wage bargaining.
But sometimes concern can morph into cynicism and obscure a realistic sense of the present. The International Monetary Fund's latest forecasts for the Australian economy, released this week in its twice-yearly World Economic Outlook, are an opportunity to view our economic performance relative to the rest of the world. The news is good. The fund is tipping economic growth of 3 per cent this year and 3.5 per cent next. This is nearly spot-on the average for world growth - both developed and developing nations - of 3.5 per cent this year and 4.1 per cent the next. Between the economic doldrums of Europe and the US and the rapid growth of China and India, Australia is steering a middle path.
But it does not end there. The IMF is tipping a steady jobless rate of 5.2 per cent this year and next, compared with a 10 per cent average jobless rate in advanced Europe, 24 per cent in Spain, 19 per cent in Greece and 14.5 per cent in Ireland. Inflation is also expected to stay within the Reserve Bank's comfort zone.
Unlike the rest of the developed world, Australia's federal budget is heading back into the black. Some economists question the wisdom of budget cuts but Australia's bottom line remains the envy of the world. Alongside relatively strong finances, Australians have a strong central bank with a firm hand on interest rates. Despite allegations of pressure from the Prime Minister to cut interest rates, the Reserve remains fiercely independent, as shown by its decision to lift interest rates in the middle of the 2007 election campaign. The Reserve will feel under no compulsion to cut rates next month unless it sees fit. And, fortunately, with rates only slightly below their historic average, and inflation moderating, there does appear room to move on monetary policy if needed to support growth.
Lists of our economic achievements, of course, gloss over the fact that the economy is undergoing a period of acute structural change. Job losses at Toyota are a reminder of the shifting tides, as jobs and investment flow out of industries hurt by our turbo-charged dollar and into the mining boom-related parts of the economy. It is not a one-for-one match, and the pain is real. But opportunities exist too, such as in mining-related and service jobs, which have helped to keep the jobless rate steady.
It is a macro-economic picture that Julia Gillard says many foreign leaders would ''cheerfully chew their right arms off to have''. But economic success is measured not only in comparison to other countries but how well Australia is living up to its potential.
Just as we have always had an eye on the future, now is the time to start dealing with longer-term challenges. Among them, the need to put government finances on a sustainable footing for decades to come. Reforms announced yesterday to the aged-care system are an important step towards tackling the biggest long-term threat to the budget: the ageing of the population. Part of the answer is, of course, a system for encouraging private savings that keeps people off the pension. As the budget-cut speculation turns to superannuation tax concessions, it pays to remember that certainty is important for people considering whether to save extra for retirement. There has been much meddling with the super system. It should stop.
Much could also be done to boost flagging productivity growth through reforms such as abolishing inefficient state taxes such as stamp duty, harmonising state regulations and removing barriers to workers moving interstate to find work. A debate is overdue on whether we should be saving more of the revenue of the mining boom in a sovereign wealth fund.
In view of these broader challenges, the recent political bickering over the budget surplus should be seen for what it is: trivial politics. A surplus of $1 billion or a deficit of $1 billion matters little in a $350 billion budget. It is only a distraction from the bigger reforms needed to ensure Australian's record two decade-long growth spurt continues.
In pursuing such reforms, Australians must stay confident that we can create the future we want, and not simply shackle ourselves to the fickleness of fortune. The grass may always be greener on the other side but at the moment the grass is fairly green for the Australian economy - and not only because of the drenching rain.
A happy ending on the chandelier
PUBLIC servants everywhere will be relieved to hear that injuries caused by swinging from the chandelier during sexual relations while on a work trip count as workplace injuries. This surely is ? will those people sniggering please be quiet? As we were saying, this decision, and yes we are being serious, this week's decision of the Federal Court - we said F-E-D-E-R-A-L C-O-U-R-T, that's how important this is, people - closes at last a dark chapter of injustice in our federal bureaucracy. No longer will Jye and Taylah from Registry have to suffer in silence from the paper cuts and bulldog-clip injuries caused by their vigorous carnal relations in the compactus during their scheduled rest break. Oh, do grow up, for heaven's sake. This is really important. The long campaign for justice mounted by Janine from Petty Cash must surely now come to a fruitful end too. Janine, as everyone will recall - a bit of shoosh, please, out there. Show some respect. This could have been you - suffered dreadful burns and scarring when trying to photocopy her private parts during the officially sanctioned Christmas party in 2009. Oh, there will be those who mock, but she had drunk seven alcopops, all bought with departmental funds. Our response to this decision couldn't be clearer: justice has at last been done. Well and truly.
Frequently Asked Questions about this Article…
What are the IMF's growth forecasts for the Australian economy and why should everyday investors care?
The IMF is forecasting Australian economic growth of about 3% this year and 3.5% next year. That performance puts Australia roughly in the middle between slower growth in parts of Europe and faster growth in China and India. For everyday investors, steady growth can support corporate profits, dividends and capital gains — so the IMF view is broadly positive for Australian markets.
How do the IMF's unemployment and inflation forecasts affect investment decisions in Australia?
The IMF expects Australia's unemployment to remain around 5.2% this year and next, and inflation to stay within the Reserve Bank's comfort zone. For investors, a stable jobless rate and contained inflation generally mean less market volatility, more predictable consumer spending and a lower risk of sudden interest rate shocks.
What does the Reserve Bank's independence and current interest rate stance mean for investors?
The article stresses the Reserve Bank's independence — it even lifted rates during the 2007 election campaign — and notes rates are only slightly below historic averages. That suggests the RBA won't cut or raise rates for political reasons and has room to adjust policy if needed. Investors should factor in that monetary policy is likely to remain data-driven, which supports planning for bond, property and equity investments.
Australia's federal budget is heading back into surplus — how might that influence markets and investor confidence?
A return to a surplus and relatively strong public finances is highlighted as a strength of the Australian economy. While there is debate about budget cuts, the article says the government's bottom line is the envy of many countries. Strong public finances can boost investor confidence by reducing sovereign risk and limiting the chance of disruptive fiscal emergencies.
What structural shifts in Australia’s economy should investors be aware of (for example, Toyota job losses)?
The article notes real structural change: job losses at Toyota and other industries hurt by a strong Australian dollar, with jobs and investment moving into mining-related sectors. For investors, this means some manufacturing and export-exposed companies may face headwinds, while mining and mining-linked services have been creating opportunities.
Should everyday investors be worried about potential changes to superannuation tax concessions?
The piece warns that speculation over superannuation tax concessions can undermine people’s willingness to save for retirement — and stresses that certainty matters. While it doesn’t predict policy moves, the takeaway for investors is to monitor superannuation policy closely, because stability in rules encourages additional retirement saving.
Which productivity reforms could boost Australia’s long-term growth and why do they matter to investors?
The article suggests reforms such as abolishing inefficient state taxes like stamp duty, harmonising state regulations and removing barriers to workers moving interstate. These measures could lift productivity and long-term growth, which would support corporate earnings and the investment case for Australian equities over time.
What's the argument for a sovereign wealth fund using mining boom revenue, and why is it relevant to investors?
The article raises an overdue debate on whether more of the mining boom's revenue should be saved in a sovereign wealth fund. The argument is that saving boom revenue could smooth volatility and help meet long-term budget challenges. For investors, a commitment to saving some resources for the future could signal prudent national fiscal management and reduce policy uncertainty tied to commodity cycles.
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