G'day mates!
The country... known for Great Barrier Reef, Bondi beach, being the home of the world’s
oldest known civilization, AND, Kangaroos that look like they have a gym membership,
Australia is the 12th biggest economy in the world by GDP
and it's among the list of countries with GDP-per-capita of over USD 50,000.
The country, also known as the “Wonder Down Under” takes pride in witnessing the longest continuous
GDP growth run. After 1991, the country didn’t see any recession for nearly 3 decades. The country
with the long coastlines even surfed its way through the 2008 financial crisis without getting
much affected. A whole generation in Australia didn’t even know what recession was until 2020.
For years, the continent-nation remained at a disadvantage for its remoteness from
major trading markets like North America and Europe. But the late 20th century resulted
in the rise of emerging markets in east and south Asia. It is said that “you are known
by the company you keep” and the company and trade with countries China and Japan,
along with the added power of globalization, made the Australian economy stronger than ever.
Estimated at nearly US $20 trillion, Australia has the tenth highest value of natural resources.
While the presence of natural resources does not guarantee economic prosperity,
and there are plenty of examples, Australia has managed to do very well with its natural
resources and meeting the demands of the eastern emerging markets.
While the huge demand from some eastern countries contributed significantly to the Australian
economy, it has also made the country’s trade disproportionately dependent on them,
more specifically on China.
The growing influence of China has started to worry some western countries like the
United States who wants to stay as the leading economy of the world.
These western powers have been actively riling up other countries against China.
Australia, backed by the United States, has been provoking China on matters including Chinese
treatment of Uighur-Muslims and transparency on the origins of the 2020’s disease, etc.
The Australian politicians wanted to provoke China but at the same time, they didn’t want to lose
exceptionally profitable trade with it. Well, you can’t have it both ways. It takes years to win a
customer and only a second to lose one. The news media kept on highlighting the matter
egotistically, emphasizing whether the economies of Australia and China are interdependent
or if one side can push the other to do more. This went on for quite some time and the Aussie
politicians thought they would just say anything they wanted to say and then have a barbie on the
beach. BUT, the blokes in China were no Bogans, they listened to all this and simply responded,
“Good On Ya, Mate” and then they added tariffs on Australian imports.
The truth is China has other alternatives even though a bit expensive,
but Australia has no other big customers like China with huge demand.
This gives China a better edge in negotiating the whole matter.
Ok before you call us a Commie or a CCP troll, let’s look at it from the Australian point of
view. Australia’s intention to merely look for opportunities in other overseas markets
and to provide some longer-term insurance for the economy is natural. But this can’t
happen unless the country diversifies its economy at home using domestic reforms,
and getting into more complex sectors other than mining, that could be exported to other countries.
Many would argue that mining is not the only reason and
the Australian economy is now more dependent on the services sector.
This is true but again, such arguments usually neglect the impact of one sector on others.
The economy of any country is a complicated beast and has tons of interrelated factors.
Also, if you notice, there has been an absolute insistence by many advanced economies almost in
a defensive way that their economy is not dependent on their prime sectors. That’s
like negating the role of banks in Switzerland or oil in Norway and similarly mining in Australia.
The funny thing is that in these examples, the services sector always happens to be around 70
percent of the GDP. Do you get what we are trying to say??? Anyways! Truth be told,
the Australian economy is not the best when it comes to diversification.
Here is the list of the top 20 countries on the Economic Complexity Index.
The Australian economy cannot be seen until you cross the 80th position. In simpler words,
it's too many eggs in few baskets. Iron, coal, and gas make up a huge portion of its net exports.
The country also adds little value to its resources. which means, it exports
raw materials to other countries instead of using its workforce to create value for itself.
Australia needs to thoroughly re-examine its relationship with China.
Are they actually concerned about issues it has raised or are they acting as a proxy for the US
against China, Or, is it simply an opportunity to
see the country’s economy from a different perspective and push for diversification?
Australia is home to nearly 26 million people. There are over 7.6 million migrants,
which means around 30 percent of the Australian population were born overseas.
After the end of the White Australia Policy in 1973, Australia has officially followed
Multiculturalism, and its immigration policies remained a good reflection of it. A good climate
and standard of living is a great attraction for the immigrants including the students,
skilled workers, and also the wealthy individuals who invest in the country.
The immigration process was halted in 2020 except for some Hollywood celebrities.
Australia has one of the lowest population-density to land.
This could invoke a sense of isolation for someone who has lived in densely populated countries.
Although for Australians that's probably normal and their way of life. How does this
relate to economics? Well, this does not allow the creation of urban street life and markets.
For example, when it comes to the restaurant industry, Australians are quick to define
their country as a culturally diverse nation, probably because Australia does not have the best
traditional food industry, sorry we didn’t count the Vegemite or roasted lamb with Vicky Bitter.
The restaurant industry usually attracts customers who are interested in food from
other countries like Indian, Chinese, Thai, etc. Although Australians take their coffee
very seriously and the failure of Starbucks in the country is a good example of it.
Australia suffers from an immense lack of historical diversity and cultural values.
The lack of nightlife makes it look different from countries that have a quality nightlife culture.
This directly impacts the domestic market and consumption. While you can certainly disagree
with that from a subjective point of view but Australia is no Rome, or Spain, or Hong Kong.
Australia ranks third in the list of countries on the Economic Freedom Index.
The country is also among the top 20 countries on the ease of doing business index.
Australia is in the top 15 list of countries that spend most on Research & Development.
While the country has seen an increase in the total amount spent in this sector,
the total R&D spending as a percentage of GDP has seen a gradual decrement after 2008.
The government’s debt has been on the rise after the 2008’s
financial crisis but remains lower than the other advanced economies.
The Australian economy witnessed a continuous current account deficit for over 45 years until
2019. Reasons included a narrow export base, heavy dependence on capital goods from overseas,
low level of national savings, and governments borrowing money from the
domestic sector that pushes the private sector to seek funds from overseas. The account surplus
seen in the last couple of years would have a positive impact on the economy.
Australia ranks the highest when it comes to the minimum wage. High wages are also great to attract
more immigrants. Although it's not good when it comes to the manufacturing industry which has
seen a decline over the years. Company offshoring is also one of the consequences of high wages.
While the country boasts about high average wages, the cost of living is very high too.
The Australian Dollar is the 5th most traded currency in the world.
The country also has one of the largest managed pools of investment funds.
The country also boasts about having one of the highest mean AND median wealth per adult. Mean net
worth is the average net worth, in other words, it is assessed by dividing the total wealth of the
entire country by the number of adults. Wealth is always unevenly distributed so that does not mean
every Australian is worth the mean value. A better figure is using the median wealth data. But even
that number does not apply to everyone. The Median Wealth represents a value that is in the middle of
all those numbers, which means half the population is below that value and half is above it.
The governments around the world, generally speaking, wants you to save less and spend more.
This continuous spending gives the economy the necessary stimulation and keeps the demand and
supply cycle running. But, It's not good for the citizens to never able to save enough, especially
not having enough saved for their retirement. This isn’t good for the governments either
if they have to provide benefits to the older citizens who can’t take care of their selves.
Australia has this program called Super-Annuation, which seems to provide a good fix for this whole
scenario. This requires you to put a government nominated percentage, currently 9.5% of the wage,
into a Superannuation scheme of your choice that goes towards providing
funding for your retirement. Pretty cool isn’t it?
It shifts some of the burdens away from the government and onto the individuals. In short,
the government has to worry less about the retired people and people have to worry less
that they are not saving enough. Because we all know how well most of the people are with savings.
In short, it is beneficial both for the government and for the people.
While the country ranks high on the quality of life index. Household debt in Australia is one
of the highest in the world, leveraged mostly for the purchase of properties.
Seeing Huntsmen and Daddy-Long-Legs spiders occasionally is less of a problem for Australians
and so is the poor internet. What is more problematic is witnessing the ever-growing
housing prices. This obviously isn’t a problem for the homeowners and also the
so-called “Baby Boomers” who want their land and housing assets to appreciate.
Australia’s homeownership rate is over 65 percent which is good although not one of
the best. Those who own houses are rich by world standards. Those who do not own,
are using a large proportion of their income in rent or mortgage. Slowly a greater number
of young individuals are actively trying to pursue a lifestyle they see others are capable
of affording. But the newer generation is locked out of buying houses in more desirable areas.
One of our friends told us that the cheapest house in Australia is the House of Representatives.
This is obviously a joke but it would give you an idea of how heated this topic is.
But looking at how average-looking houses are sold for millions of dollars, it won’t be wrong
to say that the housing prices are inflated. There could be various factors for this whole matter.
Australia is among the countries with the highest urban population concentration with over 85
percent of the people living in urbanized areas with a majority of the population living within
50 kilometers of the coastlines. Country towns are offering more affordable prices but people
have been constantly trying to buy up into the more desirable areas and even paying off investor
mortgages. This makes less affluent people miss out on the opportunity of owning a house. Maybe
a high-speed bullet train network within the cities and other areas and some
other infrastructure spending could disperse the population.
First Home Owner Grant by the government is another factor. Another factor is rich immigrants
and foreign investments in property. These investors, generally speaking, can outbid locals
in the real estate market. In other words, for locals, it's hard to compete against the Shanghai
money printing press. As a supposedly Chinese saying goes: “May you live in interesting times!”
Lending practices of the banks are another factor.
Add low-interest rates on top of it and it becomes easier to borrow money which
results in investors having more money to invest in more property. On the other hand,
increasing the interest rates would also make it harder for first-time would-be homeowners.
Negative Gearing, that investor use to reduce their taxable income and later profit from
the increase in the value of the property, has become a government-funded-cash-cow. However,
going after the negative gearing could result in increased rents.
Some economist believes that as economies grow and their infrastructure gets upgraded,
all excess wealth is manifested in increased property prices.
They also suggest abolishing the income tax and replacing it with a Land Value Tax
LVT on the owners depending on the annual percentage of increment in the land value.
But we can see this idea is going to make a lot of people a lot uncomfortable.
Australia needs dramatically new ways of finding and utilizing opportunities in
the new global economy. Diversification of trading partners would only occur when the
economy itself has more diverse options to offer. Other than that, the Australian economy is quite
Koalafied. It’s hard to predict the future but as they say “She will be right mate!”
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