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.
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.
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.
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.