March 22, 2008 Gloss Rubs Off
Australia's Shiny Economy By Sid Astbury
Sydney
Unemployment at a 33-year low, a debt-free government, inflation in
check and the best-ever terms of trade for Australia's minerals
delivering a 16th year of economic growth.
No wonder Peter Costello (leader of the Liberal Party and served as
Treasurer of Australia from 1996 to 2007) was predicting a year ago
that Prime Minister John Howard's conservative government would win
a fifth election and he would stay on as treasurer (finance
minister) beyond a dozen years.
"If you've got people in jobs, if people can afford their houses, if
business is profitable, the politics will look after itself," the
famously cocky Costello said when delivering what proved to be his
final budget.
As the November election showed, Costello got the politics wrong,
arguably, he got the economics wrong as well.
Employment is holding up in the first flush of Prime Minister Kevin
Rudd's Labor government, but inflation has now pushed beyond the
central bank's three-percent target.
Prices and wages are rising notwithstanding the 12 consecutive
interest rate rises that have pushed the cost of borrowing to 7.25
percent - the second highest in the developed world after New
Zealand.
Despite record prices for coal, iron ore, gold and other in-demand
commodities, the current account on the balance of payments has
recorded its biggest-ever deficit as the strong Australian dollar
crimps exports, sucks in imports and deters foreign tourists from
visiting.
"The trade imbalance, in other words the gap between imports and
exports, is running at about the worst that it's ever been," said
Shane Oliver, economist with AMP Capital Investors.
The consensus is that Costello stoked the economy in advance of an
election he expected the conservatives to win and that Rudd has been
left with the difficult job of slowing it down.
Westpac Bank economist Anthony Thompson said it should have been
obvious that an expansion rate of close to five percent was "beyond
the long-term speed limits of growth for our economy before you
ignite inflationary pressures".
Wayne Swan, the new treasurer, delivers his first budget in May.
He's warning that just as monetary policy has been characterized by
jacking up interest rates, fiscal policy will now have to be all
about reducing both government and private spending.
"What we have is a relatively strong economy, but one that is
absolutely shackled by very poor productivity growth and by capacity
constraints that are pushing up inflation," Swan said.
What he means by poor productivity growth - the lowest in 16 years -
is employers taking on more workers but extra staff not translating
into an increase in output.
Capacity constraints are all too evident in the difficulties
householders have in getting a plumber and in the dozens of coal
carriers parked off the east coast waiting days, even weeks, for
their turn to be loaded an waved off to foreign ports.
Rudd disputes Costello's contention he was bequeathed a strong
economy.
Frank Gelber, economist with econometrics firm BIS Shrapnel, lists
the problems of an economy that two years ago was being held up by
the International Monetary Fund as the pattern for others.
"We have a very high dollar, encouraging imports, raising import
penetration, we have got an investment boom with lots of investment
goods being imported, and we still haven't hit our straps with
exports associated with the first round of mineral investments,"
Gelber said.
The Reserve Bank of Australia (RBA), the central bank, has joined in
the criticism of Costello, saying the big-spending Howard government
became a competitor for scarce resources in the economy.
The RBA estimated that of the 334 billion Australian dollars ($310
billion) delivered by the resources boom a whopping 314 billion
Australian dollars had been matched by increased government spending
or election-driven tax cuts.
Boloji.com is owned and managed by Boloji Media Inc Privacy Policy |
Disclaimer
No part of this Internet site may
be reproduced without prior written permission of the copyright holder.
