The NEXT coming Oz election thread!

So much for the Liberals' election promises regarding economic management. Surely no one's actually surprised at this?:



Australian economy in the doldrums
March 2, 2005 - 11:49AM/the AGE

The Australian economy grew by just 0.1 per cent in the December quarter, the Australian Bureau of Statistics said today.

On an annual basis, GDP grew just 1.5 per cent.

The bureau said non-farm GDP grew by 0.2 per cent for the quarter.

On the expenditure side there was a 0.8 percentage point increase in business investment and a 0.5 percentage point increase in total final consumption.

But Australia's trade deficit sliced 0.6 percentage points from the final figure, while falls in inventories (down 0.6 percentage points) and private capital spending on dwellings (down 0.2 percentage points) held back growth.

There was a positive contribution to growth from a range of industries, while three industries - construction, retail trade and property and business services - all detracted from growth.

The 0.1 per cent increase for the quarter was the worst performance since the December quarter of 2000 when the economy contracted.

Household consumption grew 0.4 per cent seasonally adjusted, with strong growth in health (up 1.8 per cent) and furnishings and household equipment (up 0.8 per cent).

Household purchases from hotels, cafes and restaurants dropped 0.4 per cent, while government consumption was up 1.2 per cent.

Over the full year, the agriculture sector has fallen back 11.8 per cent, with a drop of 1.4 per cent in the December quarter.

By comparison, the mining sector was up 1.0 per cent for the full year, but a healthy 2.3 per cent over the quarter.

In the manufacturing sector, sales decreased 1.5 per cent for the quarter but this was offset by an increase in inventories, work-in-progress and finished goods.

On wages, the bureau said there was a 0.7 per cent increase in average earnings in the December quarter, with a 1.1 per cent rise in the number of wages and salary earners.

In a major blow to the government, the household saving ratio was minus 2.3 per cent in the December quarter after it improved slightly the previous quarter.

- AAP

Costello faces own 'banana republic'
David Uren, Economics correspondent
March 02, 2005/ the AUSTRALIAN

PETER Costello has been forced to defend his handling of the economy as new figures show Australia's deficit to the world has risen above the level that prompted Paul Keating's infamous "banana republic" warning.

As economists estimated the current account deficit, at a record $15.2billion, was equivalent to 7.1 per cent of gross domestic product in the December quarter, the Treasurer conceded: "We need to lift exports."

But he insisted the economy was in better shape than when Mr Keating, as treasurer, sparked a run on the currency after a deficit of 6.1 per cent of GDP led him to warn of Australia becoming a banana republic.

"Our economy is in a much stronger position than it was back in the days of Paul Keating," Mr Costello said.

"We have a much lower inflation rate, much lower interest rates and we have a much better commonwealth financial position. But don't underestimate the significance of these figures."

The Reserve Bank, which is expected to announce a rise in interest rates this morning, has ruled out using rates to try to reduce the current account deficit.

Some economists suggested the bank's expected decision to raise interest rates today might make the current account deficit worse.

Mr Costello signalled that he would welcome a fall in the value of the Australian dollar, saying its strength was making life difficult for exporters. He did not think high interest rates would push the currency higher -- a point disputed in financial markets.

Labor Treasury spokesman Wayne Swan said the deficit showed the nation was living beyond its means. "We're not paying our way," he said. "We can't continue to spend more than we're earning."

The run of deficits has resulted in Australia's foreign debt snowballing to $422billion, and it is now a record 51per cent of GDP.

Foreign debt rose by $1billion a week throughout last year. Interest costs on the debt reached $5.1billion in the December quarter -- a 19 per cent increase from the previous year.

But Mr Costello said servicing the debt was costing 9.3 per cent of Australia's export income, much less than in the early 1990s when high interest rates pushed the cost of foreign debt up to 20 per cent of exports.

But Mr Swan quoted the International Monetary Fund warning that Australia's debt made it vulnerable to changes by foreign investors.

"International lenders could force up the price they're charging us for loans, or stop lending at all," he said.

Several economists warned that the strength of the Australian dollar would not last.

Westpac senior economist Justin Smirk said the rise in the current account deficit and the prospect of meagre growth in the December quarter had to be approaching the "pain threshold" for foreign investors.

"The days of a strong Australian dollar do appear numbered," he said.

BT Financial Group senior economist Tracey McNaughton said that the bigger the deficit gets, the more Australians have to rely on the "kindness of strangers" to fund it.

She said the Reserve Bank and Treasury head Ken Henry were concerned Australia might suffer the same kind of currency fall as the US.

But the head of Macquarie Bank's foreign exchange division, Geoff Bowmer, said the expected increase in interest rates should keep foreign money flowing in.

He said a return of 5.5 per cent in Australian dollars appeared worth the risk, despite the current account deficit, to Japanese investors who had zero interest rates at home.

The ballooning current account deficit has forced Mr Costello on to the defensive about the economy for the first time since growth fell following the introduction of the GST.

He sought to deflect blame on to state governments, claiming they were causing bottlenecks in ports by lack of investment in infrastructure.

He also said the deficit was partly caused by the higher profits of the Australian operations of multinational companies, with repatriated dividends jumping by almost $1 billion in the December quarter.

Last Update: Wednesday, March 2, 2005. 5:22pm (AEDT)/ABC online

Govt spending spree led to rate rise, Beazley says


Federal Opposition Leader Kim Beazley says an interest rate rise announced by the Reserve Bank is a reflection of the Federal Government's election spending.

The Reserve Bank has lifted its key interest rate by a quarter of a percentage point to 5.5 per cent, as was widely expected by the financial markets.

The overnight cash rate was last raised in December 2003 and interest rates are now at their highest since March 2001.

The rise in interest rates will cost home buyers about $16 dollars a month for every $100,000 they have borrowed.

Mr Beazley says Prime Minister John Howard and Treasurer Peter Costello must take responsibility for the rise.

"The Australian people are now paying a penalty for the $66 billion hit that Howard and Costello put on the bottom line of the Budget to get themselves re-elected last year," he said.

"They invested in the wrong things and by investing in the wrong things they also created a problem that the Reserve Bank governor is now addressing."

Victorian Premier Steve Bracks also says the Federal Government must take responsibility for the interest rate rise.

"They're responsible for the economic settings, which are the settings which the Reserve Bank have to take into account when they're determining interest rates," he said.

"That is the significant spending that happened as part of the election campaign itself, which is probably one of the biggest spending any federal party has done during a federal election campaign."

Deputy Prime Minister John Anderson described the rise as "disappointing", particularly for regional communities.

~

Hi Olga

Did you see the cartoon that had Howard telling Costello there was no way we be a banana republic, we'd be a banana monarchy....

No. Is this a hinge invention?

We're on a long and slippery slide to disaster
By Tim Colebatch
Economics editor
Canberra
March 2, 2005/the AGE


COMMENT

It's what happens if you live in a fool's paradise and depend... on what you borrow.

"If this government cannot get manufacturing going again and keep moderate wage outcomes and a sensible economic policy, then Australia is basically done for, we end up being a third-rate economy... Then you have gone. You are a banana republic."
- Paul Keating, May 14, 1986

Australia has now run up a current account deficit even worse than those we had while sliding down Paul Keating's J-curve in 1986. You have to go back to the Korean War years to find another as bad as this one.

Roughly, a current account deficit of 7 per cent of GDP in the December quarter means Australians spent $107 for every $100 we earned. It's what happens if you live in a fool's paradise where your living standards depend not on what you earn, but on what you borrow.

Australia is still borrowing heaps. Last year we borrowed $66 billion from overseas, almost half as much as we earned in exports. In net terms, it was all borrowed by the banks, and most of it lent as housing mortgages.

Sir John McEwen in the '50s and Paul Keating in the '80s used the deficits to force serious reforms aimed at fixing the problem. There is no sign of that now, just a search for scapegoats.

Keating recognised that a large current account deficit was a sign of policy failure; Labor took gutsy decisions to strip away entitlements, slow the economy and shift resources to exports and manufacturing.

In the next 10 years, the volume of exports more than doubled, and manufactured exports more than quadrupled. Had those trends continued, by now the current account problem would be behind us.

But in 1996 the Coalition won office and abandoned or gutted most of Labor's programs. It thought we didn't need to build up exports and manufacturing. It even put a new $400 million a year tax on manufacturers.

Since 1997 the average growth of export volumes has slumped to 3 per cent a year, and manufactured exports to 5 per cent. Yesterday's deficit is no anomaly, but the result of a deepening policy failure.

Certainly there are other factors. The high dollar makes it rewarding to import and unrewarding to export. But that is offset by commodity prices at their highest level since the late '80s. The December quarter saw mining exports hit record earnings, with coal revenues alone up 52 per cent.

Peter Costello's search for culprits yesterday verged on the comical. Is congestion at the Dalrymple Bay coal loader responsible for the volume of manufacturing exports rising just 5 per cent in the past three years, compared with 52 per cent growth in Labor's last three? Did state taxes make the volume of our services exports slump 6 per cent since December 2000? Or push down exports of commercial and professional services by 14 per cent?

The real worry is that if the Government cannot admit its mistakes and fix the problems, the markets will ultimately do it themselves. And their methods tend to be pretty rough.

Phew! So there goes the last bit of the Liberal Party's credibility about being the expert economic managers! You might recall that at the last (recent) election "mortgage belt" voters voted in droves for the Libs believing this to be true. In fact, the fear of rising interest rates was believed to be the major concern of these (heavily in credit debt) voters. I wonder how they feel now?

I like to think of interest payment hikes, as like a tax on ignorance and liberal voting (tautology?)

Can't take credit for the banana monarchy cartoon - must have seen it in the Cairns Post!

Yes, I agree on the interest rate thing, hinge. But There's something rather awful, isn't there, about ignorance (& perceived self interest) being so exploitable by this government? Not only were they sucked in by the "sperior economic management" myth of the Libs, but now Abbott is going to screw their working conditions, too! It's tragic, really, but hey, these voters didn't give a rat's about the so-called "principled" issues, did they? Awful that they had so much power!

Wow, they are hoeing into Costello - I'm telling you Abbott will be the next leader of the Libs.

Ahh, Leunig, sometimes he's still got it.

Abbott or Costello? Good grief, what charming options the Libs will have! Actually, if Howard lingers far longer than anticipated (even now!) I predict someone with a very different demeanor than any of the above ... coz by that time this very nasty phase in Oz politics will be well & truly on the nose! It'll have to be a total face lift for the Libs. (Who'll be in opposition, most likely) But who? Hmmmmmmmmmm

Michelle Grattan wrote a speculative piece about future Liberal leaders a short while back in the AGE .... Nothing very inspiring in the wings that I could see!

Yes, sometimes he hits the nail right on the head! But I know what you mean - I liked him best when he was very rude & unruly.

You may be right, hinge!

'Guest' workers prop up economy
Elizabeth Colman and Glenda Korporaal
March 05, 2005/the AUSTRALIAN

HUNDREDS of thousands of unskilled foreigners are already helping prop up the economy as pressure mounts on the Howard Government to create a contentious new short-stay visa category to allow migrant workers to fill growing job vacancies.

The number of foreign workers applying to enter Australia has risen sharply in the past five years, from 187,000 in 1999 to 325,000 last year.

But Treasurer Peter Costello is resisting a push from business for the special visas, insisting it is "against the national ethos" to introduce short-stay "guest workers".

The Howard Government faces a mounting policy challenge, with a shortage of workers threatening to push up labour costs and inflation, while capacity constraints are dulling economic growth.

The Australian revealed this week that the Government planned to dramatically lift the intake of skilled migrants by 20,000.

Fruit-growers watching their crops rotting on trees because of a severe shortage of pickers are urging the Government to let in the migrant workers.

SPC Ardmona chief executive Nigel Garrard said the fruit industry wanted the Government to issue visas for unskilled workers for four to six months to handle seasonal demand.

He told The Weekend Australian unskilled workers were urgently needed for fruit picking and processing in Victoria's Goulburn Valley, particularly in the peak period between Christmas and Easter.

"Each year for the past three years fruit has been left on the trees because there aren't enough people to pick it, and we don't have the opportunity to process it," he said.

"We are looking for another 60 people today. If people could come and work for four to six months, it would be a real plus for us."

The Australian Industry Group, which represents companies in the manufacturing and construction sectors, said more flexible visa categories were needed.

"These skills shortages aren't going to go away next week," chief executive Heather Ridout told The Weekend Australian.

"If we cannot get people to work on projects, we should have a look at appropriate visa arrangements. A lot of construction projects can't be completed, a lot of defence projects can't be completed -- manufacturing has a real need."

But she warned against "cheap labour", saying short-term workers should enjoy the same protection afforded to other workers in terms of safety and work conditions.

"We don't want something like the Kanakas -- the guest worker strategy where you bring in cheap labour and shove them in Third-World accommodation."

Immigration Minister Amanda Vanstone revealed last month that the Government was considering a plan to allow "guest workers" to come to Australia.

Mr Costello strongly opposes the concept.

"I don't think it is consistent with our culture and I don't think it would be acceptable," he told a Canberra press conference this week.

Unskilled workers arriving from overseas on working holiday or student visas -- predominantly from Asia and Britain - are working as labourers and in sales and clerical jobs as well as in the service industry.

The Department of Immigration has predicted up to 100,000 working holidaymakers will arrive in Australia in the next financial year.

And 60 per cent of the 171,000 overseas students who came to Australia in the past financial year applied to work.

Government figures show 42per cent of working holiday-makers worked at manual labour, while 25 per cent worked in sales and 20 per cent in clerical positions.

Labor, unions on the rack
March 5, 2005/the AGE



Howard and Costello are close to achieving their long-held goals on industrial relations, writes Shaun Carney.

The Australian Industrial Relations Commission has for the past few months been celebrating its centenary. A weighty book analysing the tribunal's contribution to the nation's economic and social life has been published, and there has been a big dinner and a ceremonial sitting. The celebrations have lacked a bit of spark, and no wonder.

The commission is operating under a dark cloud. The Howard Government does not like it or the system it administers very much. And come July 1, when the Coalition secures control of the Senate, a change is going to come. The Government is determined to recast the nation's industrial relations laws, overriding and rendering redundant the state-based systems, and dramatically stripping back its own regime.

The totemic importance of industrial relations in the political careers of John Howard and Peter Costello is almost impossible to overstate. It was a shared resentment of the Australian tradition of conciliation and arbitration, and a deep loathing of the power of unions that first drew Howard and Costello together 20 years ago. .... <cont.>

http://www.theage.com.au/articles/2005/03/04/1109700674784.html