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"...public opinion deserves to be respected as well as despised" G.W.F. Hegel, 'Philosophy of Right'

the new low-revenue economic environment « Previous | |Next »
January 31, 2013

The PM's National Press Club speech explicitly addresses the consequence of the high Australian dollar in the context of a global economy and declining government revenue. The media coverage from the Canberra Press Gallery was almost entirely focused on an election date.

SpoonerJGillardelection.jpg John Spooner

The economic situation is laid out quite clearly. Gillard says:

Economic orthodoxy prescribes that falling terms of trade and falling interest rates will result in a fall in the value of a currency. But even though our terms of trade peaked around fifteen months ago and interest rates have been falling, our dollar is now actually higher. Consequently, we have to have a plan which can withstand the possibility of a persistently strong dollar into the future – not simply rely on the economic assumption that our dollar will fall. This is critical because over the coming year or two we expect to move beyond the peak of the investment phase of the mining boom.

She adds that, given the dollar's strength has persisted despite declining terms of trade and interest rates, then, we need to be prepared if it persists despite a lessening of demand for capital. The economic diversity and competitiveness pressures our nation faces now, because of our strong dollar and the huge boom we’ve had in mining investment, may well persist even though economic orthodoxy would predict their lessening.

Gillard adds:

We cannot control a number of factors that have kept our dollar strong: like the weakness in the global economy, the close-to-zero interest rates of many nations and the increasing view that Australia is something of a safe haven.Where we can make a difference is to other factors that matter for competitiveness and economic diversity. So we can and must focus on increasing skills, building a national culture of innovation, rolling out the national broadband network, investing in infrastructure, improving regulation and leveraging our proximity to and knowledge of a rising Asia into a competitive advantage.

The problem the government faces is that spending is tightly constrained by the amount of tax collected from all sources – particularly from company tax. This is significantly lower than independent forecasters or the Treasury have anticipated---- on average, lower by more than thirty billion dollars every year.

Consequently:

with pressure on revenue, it is the wrong time to be spending without outlining long-term savings strategies which show what will be foregone in order to fund the new expenditure. Put another way, we are in an era when new structural calls on the Budget need to be associated with new structural savings.....This year we will make the tough, necessary decisions to ensure our medium-term fiscal strategy is delivered, and our centrepiece plans for Australian children and Australians with disability are funded, in this new low-revenue environment.

This kind of structural economic straitjacket on the national government's budget applies to the Coalition as well, if they regain power. The straitjacket leads to increasing productivity as the way out.

Where the two political parties differ in addressing this changed economic environment is that the Coalition's policy will favour the mining and agricultural industries and reducing working conditions, whilst Labor will focus on improving skills and education in an information economy. These are two different conceptions of improving productivity.

We can see this from Abbott's claim that the NBN was not needed for Australia’s future and that a market-based approach to telecommunications would be a better policy for the Government to take. Or from Hockey's regularly cited his belief that the future of Australian telecommunications would be better served by a focus on wireless and mobile broadband rather than on fixed-line communications.

| Posted by Gary Sauer-Thompson at 6:52 AM | | Comments (8)
Comments

Comments

You would think, well hope might be more a appropriate word, that once it has been admitted that 'economic orthodoxy' is clearly wrong in one respect then perhaps the credibility of orthodoxy in other respects may be questioned rather than merely excused.
Yep, its a hope, not an expectation - sadly.

The Coalition continually misleads the Australian public about the NBN. They keep saying that 4G mobile broadband has the potential to exceed the capacity of fibre, or that connecting to the NBN will cost Australians up to $1,000.

The Coalition forgets that more and more people will enter the class of information workers and knowledge workers. More and more students will be getting more and more education, taking on more and more jobs where they work with information every day.

I think as far as the election goes, the above shines a light on the choice and to me that would be would be between an inevitable and perverse abdication of responsibility from the Tories, against a sense that Gillard is at least rational and grounded enough to grasp the real issues, relate these to the public and offer some relief, at least.
It may turn out to be a choice between the lesser of two evils but if I go to the firing squad wall, a little anaesthetic first would make all the difference.
I see a hope of an apt response to real world issues from Labor, but the Opposition is a desolate choice and an absolute non-starter in their current mind set, as far as I am concerned.

"The media coverage from the Canberra Press Gallery was almost entirely focused on an election date."

Much of the mainstream Australian media is simply unable to meaningfully discuss policy

The cartoon sums it up well.
Funny that everyone is shaking their fist but one guy has afinger out. Could be for Tim

The NBN provides Australia with the potential to become a hub for technology and innovation within our region.

Daniel A. Bell, Jiaotong University and Tsinghua University recently wrote an interested post on China US Focus website about Democracy at the Bottom, Meritocracy at the Top, Experimentation in Between and would like to your hear your view about it.