tip off

Playing fiscal games when we no longer set the rules

One might have thought, for a brief moment, the seriousness of Australia’s fiscal position finally started to sink in to the opposition.

Its refusal to countenance corporate tax cuts associated with the MRRT might reflect its slavish adherence to the interests of the miners, but it might also reflect an awareness that the whole MRRT package will — assuming commodity prices don’t reach new highs and stay there for several years — end up having a substantial cost to the budget, primarily due to the cost of the shift to 12% compulsory superannuation.

Following Treasury secretary Martin Parkinson’s speech on March 7, in which he said “with muted growth in tax receipts projected for much of the next decade, Australia will need significantly greater expenditure restraint in the decade ahead than was seen in the first half of the 2000s” the penny has started to drop that the massive structural adjustment inflicted on us by the Chinese Communist Party will have profound fiscal consequences as well, and nowhere near as positive as we expected.

We noted in January that the higher dollar would have a substantial impact on federal and state revenues.

That impact will be exacerbated by the extent to which over the past decade we have made the budget ever more reliant on corporate tax, and in particular banking and mining profits, which two years ago provided over 50% of corporate tax revenue.

The government is already dealing with the impacts of a high dollar on revenue as it searches for savings to keep next year’s budget in surplus. So are state governments, which are facing falls in property tax-based revenue and flat or falling GST revenues.

Oppositions, collectively, have yet to get the message that the fiscal world has changed and they need, if only for their own long-term good, to be a lot more honest with voters about what they can deliver. Those at the pointy end of the electoral cycle, like the LNP right now in Queensland, are having to accept that the easy calls of “no new taxes” can no longer safely be made.

Tony Abbott and Joe Hockey have been pretending that once they’re back in government, it’ll be like stepping into a time machine that will whisk Australia back to 2006, when John Howard was set to rule forever and Treasury couldn’t keep up with the rivers of revenue flowing in from the mining boom and ultra-low unemployment.

That that period was accompanied by fiscal profligacy and high interest rates is left unsaid, of course, but never mind.

Has the opposition’s refusal to countenance Labor’s corporate tax cut heralded a new era of fiscal responsibility in the Coalition? Alas, the opposition isn’t opposed to a corporate tax cut — it’s just opposed to the government’s corporate tax cut. Tony Abbott promises a “modest” corporate tax cut of his own. Given the government’s tax cut is modest enough already — 1% — the opposition’s tax cut is likely to be downright self-effacing.

Throw into this mix is the problem that too-aggressive-an-approach on savings is going to further undermine growth in the non-mining sector of the economy. State governments are already tightening their belts. An accelerated reduction in Commonwealth spending — beyond even the rapid drawdown currently budgeted for by Labor — will subtract further from growth.

Joe Hockey said recently that he wants monetary policy to do more of the heavy lifting if there’s a need for economic stimulus.

He’s not the only one. Monetary stimulus is back in fashion after our brief global flirtation with Keynesianism during the GFC. But it’s problematic in Australia, because so few of us lower our mortgage repayments when interest rates fall. RBA cuts deliver perhaps only a quarter to a third of the apparent effect. And now there’s the growing tendency of the banking oligopoly, exploiting its market dominance, to ignore the RBA anyway and jack up rates, or lower them by less than the RBA, under the pretence that they are obliged to by higher funding costs.

Quite where this leaves the “heavy lifting” that monetary policy can achieve isn’t clear, but it’s not certainly not the magic bullet some would have us believe.

In a speech in Hong Kong yesterday, Glenn Stevens touched on this point in making a broader observation about monetary policy

Monetary policy can play a role in supporting demand, to the extent that inflation performance provides scope to do so. But monetary policy cannot raise the economy’s trend rate of growth. That lies in the realm of productivity-increasing behaviour at the enterprise, governmental and inter-governmental levels. Improving productivity growth is just about the sole source of improving living standards, once the terms of trade gain has been absorbed. This is increasingly being recognised in public discussion, but it is important we do more than just debate it.

Nor can monetary policy obviate the pressure for the production side of the economy to change in response to altered relative prices. These changes in relative prices are essentially given to us by the world economy; they are not driven by any policy in Australia.”

Essentially given to us by the world economy; they are not driven by any policy in Australia. This is a key point missing in economic debate. Our politicians, and particularly those without the responsibility of office, insist that we have far more control over our circumstances than we do. It’s time for more honesty from politicians, especially those without the responsibility of office, to acknowledge this.

The only workable strategy to resolve the dilemma is to put in place long-term cuts to big-ticket budget items such as middle-class welfare and corporate tax expenditures that will phase in over forward estimates, sparing an immediate economic (and political) impact but delivering real savings over the longer term.

But that requires a little responsibility and honesty on the part of the opposition.

37
  • 1
    John
    Posted Tuesday, 20 March 2012 at 1:34 pm | Permalink

    How about introducing a poll tax?

  • 2
    paddy
    Posted Tuesday, 20 March 2012 at 1:43 pm | Permalink

    Sheesh! Keane & Dyer have turned into a couple of fantasists.
    An article calling for “a little responsibility and honesty on the part of the opposition.”???
    Shades of “we warn the Czar!”
    What a complete waste of electrons.
    It’s not going to happen and you both know it.
    While the polls continue to show the opp in front, neither the media or the rabble on the opp front bench has any reason to change their tactics.

  • 3
    Jimmy
    Posted Tuesday, 20 March 2012 at 1:56 pm | Permalink

    Abbott environmental, asylum seeker, paid parental leave scheme and economic policy positions are universally derided by exeperts at every point in the spectrum and the massive amount by which he would have to slash govt spending to fund them will drive this country into recession.

    Abbott’s sole vision for this country is him leading it and he will do and say whatever it takes for that to happen and damn the consequences.

    The indexing of military pensions against wages growth rather the CPI and the removal of means testing the private health rebate will be a massive burden on the budget which gets worse as time goes by and this is on top of the massive black holes by the scrapping of the carbon & mining taxes while cutting income & corporate tax, increasing the pension and FTB, increasing the super guarantee and spending big on direct action. If anyone can see this not leading to complete disaster I am all ears!!

  • 4
    David Hand
    Posted Tuesday, 20 March 2012 at 2:11 pm | Permalink

    There a lot of Owellian doublespeak in this article.

    ….back to 2006, when John Howard was set to rule forever and Treasury couldn’t keep up with the rivers of revenue flowing in from the mining boom and ultra-low unemployment.” Hang on a minute, I’ve listened to Wayne Swann bang on ad nauseaum about the mining profits going to greedy billionaires and the rest of us being denied our fair share, yet here we have the best and brightest of Crikey crediting our strong economy on the noughties to mining and resources.

    One might have thought, for a brief moment, the seriousness of Australia’s fiscal position finally started to sink in to the opposition” Oh yes. Crikey, and from the rhetoric coming from Gillard and Swann this morning seem to think that Abbot and Hockey are running the country.

    Gillard this morning uttered the words “tax cut” about 8 times in 3 minutes. Yes folks! It’s a tax cut! Just like the Carbon tax cut!

    I expect the mining tax and the carbon tax to go in. Inner city left elites will opine loudly about how painlessly it has occurred and the rest of us will labour under the redistributive nature of both these taxes weighing on the productive sectors of our economy. We will subsidise unproductive sectors and the whole economy will take longer to go through the transition it needs to.

  • 5
    Modus Ponens
    Posted Tuesday, 20 March 2012 at 3:10 pm | Permalink

    One thing that is within our parliamentarian’s policy controls is the amount we tax the extraction of resources - and they pissed it up against the walls. The Minerals Council must be sipping chardonnay today!

  • 6
    Wallace Scott
    Posted Tuesday, 20 March 2012 at 4:35 pm | Permalink

    Relative prices, if that means in terms of imported inflation caused by other governments then we can’t really do anything about it. But in term of the value of our dollar I think the RBA has a small room to nudge the range of the dollar down a little which will make a whole lot of difference to the export industry, AUD carry trade is very sensitive to interest decision. Ideally the AUD should fluctuate between 95US cents to 105US cents, it is a perfect equilibrium for importers and exporters.

  • 7
    Bohemian
    Posted Tuesday, 20 March 2012 at 4:49 pm | Permalink

    It’s got nothing to do with the bozos in power in Canberra - Liberal or Labor. The script is written from afar. America controls global currency through the City of London. The US is paying down its debt load by devaluing its global dollar. It has already done so to the tune of 30% against most of the major currencies in the last four years and even more against us. This is of course at the expense of its own population. We are all globalists now whether we like it or not apparently. Either that or the US could be trying to bankrupt the world in order to push the reset button on the same monetary system spawned from the loins of Modern Monetary Realism with a corrupt totalitarian twist.

    Australia appears to be number one fall guy due to an hopelessly inept government and Reserve Bank sucking it up while watching what little manufacturing or agricultural business left slip away as a result of an unsustainably high A$. In effect, we have to deal with higher production costs at home while getting paid in devalued US dollars or other global currencies against which we have re-valued 30% in the last four years.

    We, including the mining industry, are taking a massive haircut on goods we sell in US dollars, Euros, Yen or Pounds and another haircut trying to sell our goods or services in over-valued Australian dollars.

    There is only one reason international students from India, China and SE Asia are turning away from our universities and that is that they are paying 50% more in March 2012 than they did in Feb 2009. It isn’t just tuition. Parents have to stump up for housing and living costs as well. Unless you have so much money you don’t need to worry, even very well off parents in those countries have to take stock. We are pricing ourselves out of all markets including our tertiary markets, as a sop to low inflation which is largely an international effect any way. I think this happened to Japan in the 80’s and then along came China.

    If the Euro falls over (unlikely), the Aussie would slip dramatically as people retreated to the safety of the incumbent global currency despite its weaknesses. Thank goodness we have not started borrowing cheap US dollars because if we did and overnight the US re-valued, this country would go from “best case” to “basket case”.

    Fortunately, we are not running on the German Euro model which, if allowed to continue, will deliver the rest of Europe as vassal states to their German masters. We would we go to relax under that scenario? Rather we still have our own dollar. For the moment that is. So we can, if we want, devalue but as yet we have not.
    By the same token, if you want to rid your country of agriculture, manufacturing and even high level service industries in the name of interdependency, just keep the currency high in the face of what Jim Rickards calls this ongoing global currency war.

    On the other hand, if you want to keep our foreign debt at beneath stratospheric levels then we need to keep the $A high. Another possible benefit of a high A$ might be that those international banks busily buying up everything not bolted down around the world by virtue of their access to free $US money at the moment, are less likely to be inclined to buy over-valued assets in Australia when Greece must surely be beckoning. But then again, free money is free money and the quantum probably doesn’t matter all that much if it doesn’t cost anything and the whole system will be reset before it ever has to be repaid. lol

  • 8
    Mark from Melbourne
    Posted Tuesday, 20 March 2012 at 5:06 pm | Permalink

    Sounds good - got some specific examples for us to consider? These always seem to be missing from these sort of articles.

    David Hand - in case you have missed the commentary, the mining sector has been judged as one of the least productive sector of our economy. Our mining companies dont create the product and in fact they have bugger all to do with the end market. They basically are relatively good at digging things up. If I read right they arent particularly good at transporting the stuff and look to the government to build the infrastructure.

    They dont even seem to be particularly good at re-investing all the profits they make, if you look at some of the massive investments that the BHP’s and RIO’s of this world have written off.

    And you have to wonder how come we dont have a viable steel industry given we dig the iron ore up, dig up the broan coal, ship it all overseas and then buy the finished product back. A lot of this has to with BHP whilst taking massive depreciation incentives against their tax bill actually failed to spend much on updating their mills and we got left behind in the 70’s and 80’s.

    I’m all for capitalism as it still seems the best system we have going for us but anyone who thinks businessmen are the people best left to determine how to build this country and how to invest need to bone up on their business history.

  • 9
    David Hand
    Posted Tuesday, 20 March 2012 at 9:36 pm | Permalink

    I stand corrected, Mark.
    Resources labour productivity has been reported as falling. I should have used the term “wealth creating” because that’s really what I meant.

    But your negative attitude towards the contribution of mining to the prosperity of Australia can’t stand up to scrutiny. The entire state of Western Australia, including the 1.7m people who live in Perth, owe their prosperity to mining. Two towns in the north, Port Hedland and Karatha, will both become cities of over 50,000 in the next 15 years. It’s what everyone means when they refer to the two speed economy.

    I also wonder why we don’t have a viable steel industry. Of course, our steel industry does not own any coal or iron ore and so has to pay the high global price for it, But I would have thought thr capital invested in Port Kembla would have made them competitive. I think lack of labour flexibility has done them in. Closing one of their smelters and sacking hundreds of workers has never looked like the best path to me.

  • 10
    heysoos
    Posted Tuesday, 20 March 2012 at 9:47 pm | Permalink

    Sigh….

    What is the worst that can happen to a politician?

    Forced from office (voted out) and retire to the north coast on an indexed pension and perks one can only dream about.

    And to us mere mortals? - Left to pick up the pieces.

    There’s no where near enough skin in the game!

  • 11
    Bohemian
    Posted Tuesday, 20 March 2012 at 9:55 pm | Permalink

    Capitalism works but crony capitalism works even better . When the government gives insiders a helping hand to clean out the competition your future is assured and your proces stable - ask Big This and Big That. They wouldn’t have it any other way. Do you know how many banks have been either closed or taken over in the last four years in the US and who the banks are that have the funds to do it at almost zero interest? You don’t! Come on? Too big to fail?

  • 12
    Peter Ormonde
    Posted Wednesday, 21 March 2012 at 7:22 am | Permalink

    Gee it’s sad isn’t it - the way that the “post-modern” political debate descends into managerialism? Like squabbling accountants.

    We seem to accept that obscene inequality is a necessary feature of modern life, that the wealth creators are the Ginas and the Clives rather than the Toms, Dicks, Harrys and Carolines, that the banks have our best interests - and those of the nation - at heart. That the fluctuations in the AUD and the Nasdaq are worth a mention on the daily news.

    We look to the cold shower austerity of the English speakers for inspiration as if the Yanks had something we wanted, or the English… preferable to the Swedes or the Germans or the Danes who seem to have build stable, efficient and rather egalitarian societies despite their profligate welfare and high tax redistibutions.

    Ah yes but we know that in those cold places with welfare states no one can get rich - how many Swedish Donald Trumps are there? Where are their Ruperts, their Ginas and their Clives? Smothered by socialists? Cruelled by public schools and the welfare state?

    No we’ve bought this notion that the government is about creating the circumstances in which I - maybe everyone - can become rich … where luck, brilliance or hard work will see us on celebrity talent shows, in the news, in unimagined comfort. It’s all about me, me, me.

    Gordon Gecko captured the essence of the times: greed is still good. Good enough for me anyway. Gluttonocracy. Advertising is the real mass medium. Beyond socialism, narcissism. And what a grumbling disappointed complaining heap it has become.

    It is high time we took the economic debate from the clutches of concerned accountants and put the politics back into political economy.

  • 13
    Thorn
    Posted Wednesday, 21 March 2012 at 8:37 am | Permalink

    One thing that seems to be forgotten regarding Abbott getting rid of the Carbon Tax is that not only will the revenue from that tax disappear, but he has committed to exactly the same level of carbon reduction as Labor, and that his plan involves directly spending rapidly dwindling Govt income to achieve that goal.

    It is one thing to drop a tax you don’t like, but to still have to find billions of dollars to fund your own programme on top of every other promise he has made and with reduced income from having no MRRT as well … well, it is about time someone totalled up all the Abbott tax cuts and expenditure promises and held him to account.

    Every time I see Hockey trying to explain anything economic I cringe with embarrasment for him, and Robb is like some old school headmaster that does not realise that the whole game has changed since he last read a book on Economics.

    God help us if that Axis of Ignorance comprising Abbott, Hockey and Robb ever get near the Treasury!

  • 14
    Scott
    Posted Wednesday, 21 March 2012 at 11:37 am | Permalink

    @Peter O
    You do realise that while Sweden’s income equality is really good, it’s wealth equality is not great and a lot worse than Australia. It’s because the average Swede has little or no wealth. Couple of reasons…taxes mainly, but also because there is no motivation. Why invest or save for a rainy day if you are confident the government will look after you?
    The ultimate moral hazard of big government.

  • 15
    Wallace Scott
    Posted Wednesday, 21 March 2012 at 12:05 pm | Permalink

    BOHEMIAN

    There is room for the RBA to cut 50 more basis points and it will reduce the carry trade volume and nudge down the value of the dollar a little. This will not encourage any unsustainable binge borrowing by the Australian public, more over the banks will not pass the savings in full. It will not affect inflation much either because Australians are saving, much of our inflation is imported (and some indirectly caused by wage rise, this is an assumption which other have said too though I don’t have figure for wage increase).

  • 16
    Scott
    Posted Wednesday, 21 March 2012 at 12:33 pm | Permalink

    @Wallace Scott
    It’s not inflation that matters, its inflation expectation. The Reserve Bank is forward looking, as are the markets.
    Market’s expectations have been edging up and are now at around 2.65%. I don’t see the Reserve lowering the rates unless this starts getting below 2.5% consistantly.
    Besides, the Reserve has always been more interested in preserving price stability than defending the currency. And in my opinion, that is probably the right way to go. While a high dollar hurts in the short run, over the long run it can be a positive thing, improving productivity and competitiveness.

  • 17
    Edmund Moriarty
    Posted Wednesday, 21 March 2012 at 12:54 pm | Permalink

    Does anyone know if we have a shrinking pool of personal income tax payers in this country secondary to the generous handout cultures, and crazy net tax thresholds? There must be a figure somewhere??
    Isn’t this the main issue-as Bernard acknowledges in the second last paragraph. Middle Australia just ain’t paying much tax anymore-thats ok for a while, but long term is a festering problem. And a politically untouchable problem.

  • 18
    Wallace Scott
    Posted Wednesday, 21 March 2012 at 1:00 pm | Permalink

    Thanks SCOTT, you are more qualifi.ed than me on these things, in the past few years QE caused global inflation and many investors with cheap money chose to invest in Australia and push our asset price up as well, I don’t know what the outlook is, I heard that in the US bonds are becoming junk and people will pull out and they might experience deflation like Japan I don’t know what that affect will be Australia.

    PETER ORMONDE - I’m sure there will be plenty of articles written on philosophical perspectives for us readers to discuss. We need variety of articles, I would go crazy if I always have to read politics and philosophy. I did not know that Michel Foucault or post-modernism has made its way into Australian politics, it would be a very long discussion if someone starts it.

  • 19
    David Hand
    Posted Wednesday, 21 March 2012 at 1:35 pm | Permalink

    I’m just an interested follower of Australia’s economic relationships with the rest of the world and certainly no expert. From my non expert position I believe floating the dollar in the 80s was one of the best economic reforms we ever did. Therefore any action to try and manipulate the value up or down would in my opinion be bad.

    Having said that, I recognise the impact of the carry trade on the value of the dollar and our high dollar is strongly influenced by this. But I’m of the view that taking action on it would have worse outcomes than doing nothing.

    Overall, I think our high dollar is testament to our strong economy and it contributes to our high wages, something no one should complain about. therefore the next challenge is productivity, that is, getting more value out of our labour in order to sustain our high standard of living.

  • 20
    Peter Ormonde
    Posted Wednesday, 21 March 2012 at 1:49 pm | Permalink

    Scott…

    Wealth equality… hmmm … this is a new concept for me. I’d always found wealth to be inherently unequal being a rather relative idea. The odd reference or source where I can find enlightenment on this issue would be appreciated.

    Yes I feel for those who would like to get rich and horde stuff up for themselves… must be very frustrating. Totally demotivationalising… crippling incentivisiationality and grinding the aspirationogratification under the iron heel of sharing stuff around.

    So lets go with the greed is good idea - every man for himself - every dog has his day - let them eat cake (or macca’s) …. self interest uber alles… and watch how quickly we see the rise of the trailer park suburb and the chronic working poor.

    Ever since the do-gooders and liberals put the foot down on slavery it’s been downhill all the way incentivation-wise innit? Just took all the fun out of it having to pay ‘em. Slavery - no moral hazard there eh? Or wage cuts and workchoices… heck no!

    You’ve really gotta read a bit off the syllabus Scott … they’re teaching you some very silly ideas.

    Anyway send me a link or a source for this notion of “wealth equality”… sounds wonderful. We can all be rich. Too good to be true even.

  • 21
    Edmund Moriarty
    Posted Wednesday, 21 March 2012 at 2:01 pm | Permalink

    Income equality means people scramble for the easiest jobs.
    Income inequality means people scramble for the hardest jobs.

    Which scramble leads to the greatest good?

  • 22
    Scott
    Posted Wednesday, 21 March 2012 at 2:32 pm | Permalink

    @Peter O
    As with the Income Gini Coefficient, there is a Wealth Gini Coefficient. The two can be remarkably different for some individual countries (like Sweden). Can usually find the figures in World Bank and OECD reports.
    Australia has one of the better Wealth Gini’s due to our tax laws regarding investment (imputation credits, capital gains discounts) and economic reforms that focus on wealth creation for individuals and families (compulsary superannuation, negative gearing for investment property, first home owners grant etc).

  • 23
    Tom Conley
    Posted Wednesday, 21 March 2012 at 3:00 pm | Permalink

    There is always a role for policy. How government’s react to uncontrollable outside economic forces still matters to Australians.

    It is ridiculous to say that we don’t control our circumstances. it is a view that fits in with the rhetoric of those who say that “there is no alternative”. There are always alternatives with varying outcomes better or worse.

    How we spread the benefits and burdens of being an open economy is very important and within our control. This is exactly why we need higher resource taxation.

  • 24
    Wallace Scott
    Posted Wednesday, 21 March 2012 at 7:33 pm | Permalink

    David Hand

    There is a difference between try.ing to manipulate or distort the value of the currency and try.ing to correct its value. There is a small room for the RBA to act given that inflation is within its target range (last security inflation was 2% at the botttom range) as well as due consideration to the fact that much of our inflation over the past years has been from external or global source and natural disaster which RBA’s policy could have only very minimal impact.

  • 25
    David Hand
    Posted Wednesday, 21 March 2012 at 10:25 pm | Permalink

    Wallace,
    you may well be correct and the RBA may have some ability to reduce the value of the dollar by lowering interest rates. But this risks the consequences of stimulating demand and beginning an inflationary spiral. As someone said earlier in this thread, inflationary expectation would be very damaging for our economy and this is the RBA’s fundamental brief.

    I can understand why they are not touching them at the moment.

  • 26
    drsmithy
    Posted Thursday, 22 March 2012 at 7:45 am | Permalink

    Ideally the AUD should fluctuate between 95US cents to 105US cents, it is a perfect equilibrium for importers and exporters.

    The long term average of the AUD is down in the $0.80s. The range you suggest is demonstrably (from the last couple of years) a catastrophe for local exporters.

  • 27
    Peter Ormonde
    Posted Thursday, 22 March 2012 at 9:17 am | Permalink

    Scott…

    You greed-is-good types crack me up …

    I had a look at the list of countries by their “wealth Gini index” … what a hoot!
    http://en.wikipedia.org/wiki/List_of_countries_by_distribution_of_wealth

    Leading the pack at the turn is the USA on 0.801… oh wait no it’s not … it’s Zimbabwe with 0.845. No wait it’s Namibia on an outstanding 0.847 taking it out by a nose.

    Togo does well too with 0.711. Syria seems surprisingly wealthy with 0.704.
    Rwanda makes a surprising surge at 0.704. PNG comes up well too on 0.738. Nigeria makes a late run with 0.738 …

    In fact this index looks like the poorer the country - the more a hell hole - the more guns and dead babies - the better individual wealth seems to score. Who would have thought?

    Even Mali on 0.750 seems to have the right sort of policy and tax settings to encourage you go-getter types to get out and pile stuff up. Haiti does well into the straight with 0.755. It probably went up after the earthquake.

    Sadly most of the really promising countries are actually too poor, too corrupt or too busy making you individuals rich to bother collecting statistics so they don’t actually get a start at the barrier.

    Australia runs a very disappointing 0.622 … nobbled by taxation obviously.

    Now I wonder what we’re actually measuring here Scott? On the numbers it looks like Burkina Faso or Benin would be the sort of place you’d be wanting to bring up your kids.

    This index simply reflects the obvious: That in the midst of great poverty and squalour there is great individual wealth - that’s how they make their dough - a deregulated labor market and lots of desperate hands. I’d reckon that bastion of small government Somalia would romp it in.

    By the look of it I’m actually quite proud that Australia has failed to record a strong result in this race to the bottom. A decent outcome.

  • 28
    drsmithy
    Posted Thursday, 22 March 2012 at 9:31 am | Permalink

    But your negative attitude towards the contribution of mining to the prosperity of Australia can’t stand up to scrutiny.

    Absolutely it can, and does. The benefits of the mining boom are localised and isolated (primarily boom towns and, to a lesser extent, boom states), while the consequences are spread throughout the entire economy.

    Mining employs something like 2% of the workforce, a percentage which is unlikely to shift anywhere but down as more automated techniques - sorry, “productivity improvements” - come online.

    It boggles the mind that during a once-in-a-lifetime resources boom, Australia has done little more than sell off (!) national infrastructure and borrow money from foreigners to swap houses with each other and inflate one of history’s largest real estate bubbles. “Lucky country”, indeed.

    From my non expert position I believe floating the dollar in the 80s was one of the best economic reforms we ever did. Therefore any action to try and manipulate the value up or down would in my opinion be bad.

    The value of a floating currency is predicated on the assumption of a level playing field. Ie: that everyone else is also floating their currency subject to market forces and not manipulating.

    Currently Australia is about the only country actually doing this. Everyone else is either artificially devaluing their currency (America) or pegging it at fixed rates to save their local economies from being laid waste to (Switzerland).

    Overall, I think our high dollar is testament to our strong economy and it contributes to our high wages, something no one should complain about.

    High wages are meaningless if accompanied by accelerating living costs, and Australia’s living costs have skyrocketed in the last decade to amongst the highest in the world (driven in no small part by our astronomical real estate bubble).

    The cost of living is higher in Perth than it is in Paris and London. It’s on par with Tokyo, FFS. Something like 4 of the 20 most expensive cities in the world are in Australia. That’s utterly insane.

    We had a strong economy and high wages when the dollar was trading at 1/2 to 3/4 what it does today. Stronger, in fact, because it involved more than selling dirt to China and (completely unproductively) houses-trading. Our economy is rapidly becoming a one-trick pony - what do you think is going to happen when the rest of the world is bored of the trick ?

  • 29
    Peter Ormonde
    Posted Thursday, 22 March 2012 at 9:47 am | Permalink

    Excellent points Dr Smithy.

    But do me a favour … when you’re quoting some ratbag prior to demolishing them - tell us who it is … saves me having to go back and find it, let alone read it again. I’ve managed to train my brain to delete silliness before it gets buried in the memory.

  • 30
    drsmithy
    Posted Thursday, 22 March 2012 at 9:52 am | Permalink

    You do realise that while Sweden’s income equality is really good, it’s wealth equality is not great and a lot worse than Australia.

    Is this the same wealth equality measure that says China rates second-best in the world ?

    It’s because the average Swede has little or no wealth. Couple of reasons…taxes mainly, but also because there is no motivation. Why invest or save for a rainy day if you are confident the government will look after you?

    Because even the most generous welfare schemes are bugger all compared to an average middle-class income ?

  • 31
    David Hand
    Posted Thursday, 22 March 2012 at 10:18 am | Permalink

    Doctor,

    But in the face of a mining boom generating the biggest investment surge since the gold rush……….. During their last term in government, the Liberal Party was the beneficiary of a $334 billion revenue windfall.” Penny Wong, 22 Feb 2011.

    So there you have it Doctor, from the mouth of our finance minister. $334 billion windfall, over $100 billion a year, revenue for taxpayers from 2004 to 2007 and more since. Yep, maybe is was all spent on a school hall at Port Hedland primary school, or maybe you saw some of it. I’ll let you decide. Or Penny’s wrong again.

    Floating currencies. The pound, the US dollar the Euro are all floating currencies. The Yuan is tied to the US dollar so floats with it. The Chinese periodically revalue it upwards against the US dollar. Our dollar is high because all our trading partners are in recession and we are not. We are not in recession because of our booming resources sector. That it! A great way to drive down the value of our dollar would be to have a recession!

    If we devalue the dollar, inflation will push prices up to where they are today in approximate real terms. Except peoples wages of course. For them prices will rise much faster than their income, making most of us poorer.

    Lastly Why is Perth so expensive? Not because of mining income, surely!

  • 32
    Wallace Scott
    Posted Thursday, 22 March 2012 at 12:24 pm | Permalink

    Dr Smithy

    Long term average of AUD is 80 US cents. True but this is 2012 the Australian economy is different (as well as the world), you can’t seriously use the 80US cents mark as a bench mark for our dollar. Try to calm down and lower your ego a bit, it would be helpful for the discussion.

  • 33
    Wallace Scott
    Posted Thursday, 22 March 2012 at 12:25 pm | Permalink

    DrSmithy

    Long term average of AUD is 80 US cents. True but this is 2012 the Australian economy is different (as well as the world), you can’t seriously use the 80US cents mark as a bench mark for our dollar. Try to calm down and lower your e.g.o a bit, it would be helpful for the discussion.

  • 34
    Wallace Scott
    Posted Thursday, 22 March 2012 at 12:32 pm | Permalink

    Drsmithy

    This is 2012 our economy and value of our dollar is different (as well as the world). 95 US cents is very good for our exporters. Using the average of 80 cents don’t reflect the value of our currency today relative to the world. Don’t know why my comments did not go through.

  • 35
    Wallace Scott
    Posted Thursday, 22 March 2012 at 12:34 pm | Permalink

    Dr smithy

    This is 2012 our economy and value of our dollar is different (as well as the world). 95 US cents is very good for our exporters. Using the average of 80 cents don’t reflect the value of our currency today relative to the world. Don’t know why my comments did not go through.

  • 36
    Wallace Scott
    Posted Thursday, 22 March 2012 at 12:38 pm | Permalink

    they keep barring my comment

  • 37
    Mike Flanagan
    Posted Friday, 23 March 2012 at 5:08 pm | Permalink

    Wal Scott;
    You certainly got your comments through and posted this time. I thought you had got the ssss stutters!!!

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