Overseas economic experts are often amazed at the pessimism that Australians express towards their economy. Part of the story is our national affection for some drama. Partly it is just the lunacy of the far right in trying to exaggerate the perils our economy faces to advance their political and Newscorp-style journalistic objectives. I like the balance shown in Reserve Bank and official Treasury reports on our economy. These reports have a Delphic caution to them. But they are also designed to dispel myths by focusing on core issues of popular concern that are not in fact of any concern. The Treasury’s Economic Statement is an instance. The August issue has just been released – it is 74 pages but written in a straightforward way and an easy document to skim. Highly recommended. It won’t get the adrenalin pumping but it does effectively counterbalance the myths being spread in rags like The Australian.
The Australian economy faces somewhat higher unemployment in the future because of the end of the mining boom and the structural shift away from mining industries. A negative terms-of-trade shock must reduce Australian incomes because we are now paid less for our exports. But given the circumstances of this shock and given Australia’s escape, without major damage, from the GFC our macroeconomic record has been creditable. I don’t know how much of our escape from the clutches of the GFC can be attributed to the Rudd fiscal expansions and to (unexpected) resilience of the Chinese economy. But the external resilience was unexpected. As macroeconomic policy goes Australia’s stance was sensibly precautionary. China’s enduring economic strength was not, as right-wing commentators suggested earlier this week in The Australian, something that was obvious. It wasn’t obvious at all except with the benefit of 20:20 vision of perfect hindsight!
Was the economy ruined by a massive fiscal expansion engineered by socialist money-wasters? Well, no, not at all. Our government debt levels as a percentage of GDP are around 10%. They might blow out to 12% by 2016-17. Our net government debt is, by a mile, lower than in virtually any other developed country. The Euro debt is averaging 75% of GDP, Japan 150%, the US and UK around 90%. Interest payments on this debt in Australia are about 1/3 of a cent for each dollar of GDP.
Tax receipts (as well as non-taxation receipts to the government) as a fraction of GDP are lower than they have been for most of the last 20 years so we are not collapsing under the yoke of an excessive tax burden either. Government expenditures as a fraction of GDP are lower than they have been for the last 30 years. Neither is public sector spending pushing Australia’s towards the poorhouse. (Indeed as Australia has substantially grown its per capita incomes over the past 30 years one would hope for a higher allocation of our national incomes being spent on education, health and the environment. But this hasn’t happened – total public spending relative to the economy has been amazingly stable).
Overall the Australian economy looks about the strongest of any country in the developed world – low inflation, moderate unemployment and low public debt. Yes, there will be an easing in growth partly due to weaker than expected Chinese growth (not that low BTW, it will “struggle along” with 7 plus% growth through to 2015) so that tax receipts will fall but our deficit problems are entirely manageable. The deficit in 2012/13 will be around 1.2% of GDP which is negligible compared to deficits in the Euro area, Japan, the US and UK. For that we will get a much better school system and a much fairer way of treating those with disabilities. The latter are among the most disadvantaged in the community. I can live with this.
I do recommend the Treasury Economic Outlook document not only to my blog readers but to the so-called journalists at The Australian. Writing lies about the state of the Australian economy doesn’t facilitate sensible public voting decisions. It also diverts the limited attention span of our politicians away from issues of governing well towards addressing the lies – dealing with nonsensically exaggerated claims about exploding debts and deficits and so on. The lies also provide a free kick to opposition parties because they can escape their proper role of holding the government to account. And indeed there have been a myriad of real problems in the way Labor has governed. Finally, emphasising false issues of doom and gloom also unnecessarily “talks down” the economy and makes citizens feel less secure than they are. Adding to the national anxiety unnecessarily makes Australians worse off.
Telling lies is socially irresponsible. So too is exaggerating the difficulties Australia faces simply to add drama to a story.