Maroc - EURASIAREVIEW.COM - A la une - 30/12/2024 01:08

Australia Now Has To Create New Economic Luck – OpEd

By EAF Editorial Board Australia is said to be the lucky country. With abundant natural resources, producing more than three times its own energy needs and exporting 70 per cent of its agricultural production, Australia helps to power and feed East Asia — the world’s most economically dynamic region to its north.  Australia’s geographic isolation from its European political–cultural metropole and economic partners was once bemoaned as the ‘tyranny of distance‘. Its geography is now unquestionably an advantage, with relative proximity to East Asian markets and absolute distance from military security threats.  The economic embrace of East Asia and transformative economic reforms in the 1980s helped Australia achieve three decades of economic growth without recession until the COVID-19 pandemic. Flexible markets at home, a macroeconomic framework that targets full employment and international openness meant that the Australian economy continued to grow through the Asian Financial Crisis of the late 1990s, even with two-thirds of its trade directed to the region, and avoided recession during the Global Financial Crisis a decade later.  That experience in part helps to explain why Australia has largely avoided the backlash against globalisation seen in other advanced industrial economies. So do its political institutions: an independent electoral commission, compulsory voting and a preferential voting system that incentivises the major parties to prioritise the pragmatic concerns of median voters over firing up partisans. The benefits of growth have thus been shared across a relatively egalitarian society.  Australia was never going to amount to much unless it took advantage of its luck. In this week’s lead article, Adam Triggs and Charlie Barnes explain that Australian living standards are now going backwards. ‘One statistic summarises the challenges facing the Australian economy’, they argue: ‘since the last federal election in 2022, Australians have lost more than 10 years of real wage growth’.  While real household disposable income per capita grew 8.9 per cent across the OECD between the end of the 2018–19 financial year and the same time in 2024, it fell 1.4 per cent in Australia.  The structural problems that have seen productivity growth stalling have been mounting for at least a decade, but have been masked by the terms of trade windfalls from exporting iron ore and other minerals to a resource-hungry China.  In 2018 the Economist magazine described Australia as ‘perhaps the most successful rich economy’ in the world because of its rising incomes, low public debt, affordable welfare state and popular support for immigration.  Today, incomes are sliding backwards, public debt is rising, the welfare state is under pressure from a rapidly growing disability insurance system and the government is having trouble managing the politics of a huge surge in post-pandemic immigration.  The perceived impact of high migration on housing prices has caused both political parties to call for sharp cuts to immigration, Triggs and Barnes note. That includes foreign students, ‘despite international education being Australia’s third-largest export’. Without immigration, Australia would have been in recession by 2022. The policy to limit international student numbers and this damage to the higher education sector because of rising housing rents is akin to restricting the export of iron ore — Australia’s largest export — because its success appreciates the exchange rate.  The source of Australia’s high living standards is its international specialisation in a narrow range of commodities and services and openness to foreign investment. Its institutions — such as a flexible exchange rate and relatively well-managed macroeconomic framework — help the economy adjust to the big shifts in global demand for its commodities without going into recession.  The centre-left Labor Party government of Prime Minister Anthony Albanese has joined the global fashion of activism and interventionism in the market, announcing a Future Made in Australia plan to help decarbonise the economy, make it more resilient and to turn Australia into a renewable energy superpower. It has committed A$22.7 billion (US$14.2 billion) in subsidies, grants and investment incentives to drive green technology and advanced manufacturing.  Without a clear framework, Future Made in Australia is likely to be a recipe for waste, with subsidies going to manufacturing that is better and more cheaply done elsewhere. In the name of making the economy more resilient and secure, it is more likely to achieve exactly the opposite. With an abundance of renewable energy resources, Australia is positioned to create its own new luck through the transformation of its economic relations with China, Japan and the rest of East Asia through embedded renewable energy exports. But what is missing from the Australian political agenda are the reforms that are needed in labour and other markets and a foreign investment regime that is open again to the massive foreign investment, including from China, that will deliver it. With an election due in the first half of 2025, neither of the two major political parties has a reform strategy that would lift living standards and restore real growth in this way.  If it is to avoid having its luck run out, Australia needs a reform agenda suited to the structure of the Australian economy and its new position in the world.  Source: The EAF Editorial Board is located in the Crawford School of Public Policy, College of Asia and the Pacific, The Australian National University.