- - Sunday, February 3, 2019


Troubled times are closing in on “the lucky country.” Australia hasn’t had a recession in almost 30 years, which is one good reason to call it lucky. Australia has made good use of geography and happy fortune. It escaped the global financial crisis of 2008-09 and it has skillfully exploited its natural resources to build trade and investment relations in Asia.

The income of Australian workers, unlike in some other countries, has grown relatively steadily, and Australia enjoys the world’s 13th-largest economy and the 10th-highest per capita income. In 2018, it overtook Switzerland to become the country with the highest average per capita wealth.

With a population of 25 million, Australia has admitted as many as 190,000 newcomers annually, nearly three times as many, relative to population, as the United States. Public debt is just 41 percent of gross national product, one of the lowest in the industrialized world. After an overhaul of the pension system nearly 30 years ago, workers are obliged to save for their retirement through private investment funds. Australia’s health care system is a public-private hybrid with the government bearing only a relatively small proportion, a scheme that remains a distant dream of economists in the U.S. and Europe.

Living standards have risen because of export volumes of booming commodities that have strengthened the Australian dollar’s buying power overseas and prompted large investment in new resource-processing capacity, including major deals with Japanese energy companies to build liquid natural gas processing plants. Unemployment is relatively low.

But with that good fortune has come increasing political instability. Between 1983 and 2007, just three prime ministers held office (Bob Hawke and Paul Keating of the Labor Party and John Howard of the Liberals). Since then, the administration of government has changed parties six times. The last time a prime minister survived for an entire three-year term was 2004-07.

Now comes challenging times. The commodity boom appears to have peaked with prices falling in the key exports of coal and iron ore. As investment falls in the resource-sector, Australia will have to adjust somewhere. A precipitous fall in world commodity prices might prompt a very sharp exchange-rate depreciation, with investors consequently selling off Australian assets. The good news is that Australia’s fiscal deficit and public debt compare favorably with other nations, and the government’s objective of a budget surplus by the third decade of the new century seems within reach.

But a growing population will make further demands on what appears to be an adequate health system, for now. High affordability and a risk of macroeconomic impacts if prices fall rapidly in a booming housing market is one threat. Building approvals have fallen to their lowest level in five years. Construction forecasts, particularly for residential housing, offers a bleak prospect for building activity in early 2019. House prices are down 3.5 percent from their peak, and in some cities the situation is worse than that. Perth is down 25 percent since its peak in 2007, Sydney is down 8 percent just this year and Melbourne is down 6.6 percent. Supply of new houses and apartments is expected to rise further later this year, with many large apartment projects about to be finished. Even if all the apartments are already sold off the plan (and they aren’t) and all the pre-sales settle smoothly (and they usually don’t), when residents move into the new apartments it will create a second round of vacant properties, some of which will be for sale.

In spite of several decades of manicured government policy there’s a wide social and economic gap between Australia’s indigenous peoples and the rest of the population. Indigenous Australians, about 3 percent of the population, have a life expectancy about 10 years lower, and an employment rate 25 percent less than the rest of the population.

Infrastructure gaps must be dealt with. Assuring water supply and drought are increasingly difficult and expensive. Education must be improved; performance test results of 15-year-old pupils fall short of top-ranking countries. Australia has a fundamental tax structure problem. Spending in the Australian states is dependent on large transfers of revenue from the central government, often with cumbersome strings attached. This imbalance drives national agendas, but means less locally tailored spending. Luck, even long-running luck, can be fickle. Here today, gone tomorrow.

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