Australia’s prime minister may have resolved a bitter leadership crisis, but the rancor over her government’s performance highlights a deeper sense of dissatisfaction that belies the so-called “Lucky Country’s” economic strength.
Australian Prime Minister Julia Gillard, who on Monday fought off a challenge to lead the ruling Labor Party, despite a string of policy successes, has largely failed to convince voters that their position and prospects compare favorably to much of the rest of the world.
The discontent puzzles policymakers, who have tried to ensure businesses and consumers do not turn their glumness into a reality.
“Perhaps we as a society tend to not give sufficient weight to the fact that we are in a long upswing,” Reserve Bank of Australia Governor Glenn Stevens told lawmakers last week, highlighting the country’s low unemployment rate, subdued inflation, strength in government finances and attractiveness to foreign investment.
“We’ve got issues, but it’s actually a pretty reasonable performance compared both with our historical experience and with the vast bulk of other countries you might choose with which to draw a comparison,” he said.
The resource-rich country of just 22.8 million people has grown almost without pause for more than two decades. Indeed, it was the only developed nation to dodge recession during the global financial crisis.
Its jobless rate of 5.1 percent is half that of the EU and comfortably below the US’ 8.3 percent.
The country’s banks are sound, government debt is small and the budget is well on the way to surplus. Sydney, Melbourne, Adelaide and Perth recently made The Economist magazine’s top 10 list of the world’s most liveable cities.
Yet you cannot turn on a TV or pick up a newspaper without being bombarded by negative headlines, focusing on the political crisis, job losses and the rising cost of living.
The top official in the Australian Treasury Department also described an “overwhelming negative” tone in much of the current debate on the economy, and told businesses and consumers to lighten up.
“It is almost as if most Australians seem to think we live in Greece. We don’t,” Australian Treasury Secretary Martin Parkinson told an Australian Senate hearing earlier this month. “We actually have an incredibly bright future ahead of us.”
UNCERTAINTY WEIGHS
Much has been made of the patchy, two-speed nature of Australia’s economic growth.
The country’s vast mining sector is enjoying a once-in-a-century, China-fueled boom, but manufacturers are being gutted by the strong Australian dollar and retailers are struggling.
“The economy is very strong in general, but it’s really strong for high income-earners and people around the mining industry. It’s not enormously strong for an ordinary man in the street,” Australia National University economics professor Bob Gregory said. “There are some scare stories out there, like the banks are laying off people, the carmakers are laying off people … that just makes people a little edgy.”
Bernard Salt, a partner at KPMG and a consultant on cultural and demographic trends, said global economic uncertainty, combined with local political uncertainty, was weighing on Australians.
“We are waiting for something to happen with the hung parliament, we are waiting for something to happen with Greece and that means we just don’t have the confidence in the future,” he said.
An improvement in either could spark a sharp revival in Australia’s mood, Salt said.
“If … we still have a fundamentally sound economy, then later this year, consumers will suddenly realize that they’ve been saving and what will happen is that you get a complete turnaround in consumer confidence,” he said.
A much-watched monthly survey of 1,200 consumers from Westpac showed optimists only fractionally outnumbered pessimists this month, with family finances and the economy cited as the main concerns.
The lack of optimism could also have something to do with Australian opposition leader Tony Abbott, who has been running a relentlessly negative campaign against the government.
In particular, Abbott has managed to tar a coming price on carbon as a “huge tax on everything,” tapping into household unease about the rising cost of living, particularly housing.
In a country with home ownership levels among the world’s highest, the average home loan is A$294,100 (US$316,690), against an average US mortgage of US$240,000.
Home loan rates are more than double those in the US at just over 7 percent, leading to annual payments of about A$2,000 a month, although affordability has actually been improving for the past four quarters.
Starved of investment in the past, water and power generators are having to spend heavily to modernize. That has resulted in double-digit rises in utility bills, with the promise of more to come for years yet.
Private education has also become something of an obsession with the middle classes, sending enrollments surging in the last few years, but it’s an expensive choice, given inflation in the sector is twice the national rate.
Private schooling can cost more than A$20,000 a year for each child.
Then again, there are few countries so rich that private schooling is an everyday concern. Australians also seem confident enough to travel abroad in record numbers, taking advantage of a currency at multi-decade highs.
Neither has cost concerns interrupted their love affair with sports utility vehicles, where sales surged almost 30 percent last year to an all-time high.
GREATEST GIFT
Stevens, who described the country’s mining boom as “the biggest gift the global economy has handed Australia since the gold rush of the 1850s,” has explained the perception in the context of the impact of the global financial crisis on household wealth.
In the 10 years up to 2005, household wealth expanded at twice the pace of the previous three decades, mostly thanks to a debt-driven rise in home values. The government was also flush with revenue and happy to cut taxes year after year.
However, since 2008, growth in home prices braked sharply before turning negative last year. As a result, assets peaked at 803 percent of disposable income in the third quarter of 2007. Four years later, the same ratio was back at 681 percent.
Meanwhile the global crisis blew a hole in government revenues, likely putting an end to tax cuts for some time to come, and turned households cautious on spending.
Having been negative for a while in the middle of the last decade, the household savings ratio has since shot up to 10 percent and looks set to stay there.
However, this sea change is not due to a lack of income, a stark difference with most other rich world peers. National disposable income is growing about 6 percent a year, even after adjusting for inflation.
“There’s no doubt household wealth has fallen and costs are rising, especially for non-discretionary items, and that’s playing on people’s minds, but really, these problems are nowhere as tough as what other developed nations are facing. Given the choice, they are the kinds of problems you would prefer to have,” Macquarie senior economist Brian Redican said.
Additional reporting by Maggie Lu Yueyang
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