My notes based on an Address by Professor Ian Harper at the Australian Bishops’ Meeting 2012 (errors ALL mine!):
Global economy is growing but below trend. USA, Europe, Asia.
Debt overhang in Europe – transferred from private to state/public sector.
Recession (2qtrs of –ve growth) but not depression (includes unemployment, bankruptcies, over 2 qtrs –ve growth, etc) at this stage.
European Federation model is unstable
A Federation is formed by 3 factors: Economic, Currency & Political unions.
Australia did these 3 factors and in the above order. Also Canada, USA, others.
Europe has 2 out of 3 (not the third: Political) and is therefore not a stable union.
Tasmania is Australia’s Greece in the sense that Tasmania’s economy is significantly lagging but because it is a member of a stable federation which has all 3 factors in place then it is carried by the other states. Structural adjustment will occur through internal drivers such as GST allocation and an overpriced (Tasmanian) currency because it is the Australian currency.
If Tasmania were a separate nation then its currency would be devalued against other currencies, including the Australian dollar. Structural adjustment would then be driven by devaluation.
Possible futures for Europe:
Lengthy recession as economies re-balance and reform;
Mixture of default, debt re-structure and inflation; (austerity)
A partial break-up of the EU (least likely?)
Austerity and social unrest were experienced in Europe 1919- 2009:
Chinese expansion will extend beyond 2012, although:
Annual GDP growth moderated to 9.2% in Q4 2011; growth targets have been lowered from 8% to 7.5% for 2012.
Chinese govt has slowed inflation by reducing growth targets.
China’s economy is largely influenced by its huge domestic market and to a significant extent is self contained.
Implications for Australia
Credit ratings of Australia’s major banks are under pressure
Cuts by the Australian Govt to expenditure are not warranted. There is scope for moderating monetary and fiscal policy
Chinese economy has decades to grow
High direct investment by foreign nations and corporations in Australia
The ‘Brisbane Line’ divides the economic life of Australia. Thus South east Australia has 80% employment and 47% investment projects.
We have experienced this historically when national income came overwhelmingly at different times from gold mining, wool, wheat or minerals. This disparity in wealth generation pulls at our efforts to build a national community. To help overcome this imbalance in wealth creation around our nation, Australia has sought means of wealth re-distribution to maintain social unity. Hence wage setting and taxation, including the recent tax on mineral wealth.
The ‘Commodity Export Economy’ tears away at the social fabric of our nation.
Australian economy passing through structural change.
A changing labour market.
Fly-in/fly-out (FIFO) dissatisfaction, proportion of partners, strains on community in both the work and ‘home’: Pastoral work!!
Victoria has been growing because of population growth and through services to the mining industry.
Australia’s Sovereign Wealth Fund is not needed because our mineral wealth is so great that by the time it runs out Australia will have another economy. Australia must invest in infrastructure.
Australia needs a mechanism to transfer the largesse from one wealthy sector to another. Mining tax is a legitimate wealth transfer mechanism. Mining industry feels it was let down over the introduction of a mining tax by Australia’s Federal Government.
*See Professor Harper’s award winning book, Economics for Life. and his Address at the Tasmanian Parliamentary Breakfast on the Global Fianancial Crisis.