23rd February 2017

As markets go up and down, the success of economies often boils down to how proficient those countries are at responding to – if not actually anticipating – the most important fluctuations. A country’s economic priorities can act either as a magnifying or mitigating factor in turbulent times, and despite popular one-size-fits-all ideologies and solutions, a policy that has a life-saving effect in one situation can be precisely the wrong kind of medicine in another.

The most recent report by the Organisation for Economic Co-operation and Development (OECD) praises Australia’s response to decreasing commodity prices, but emphasises that a shift away from corporate income tax, and toward a rise in GST would increase business efficiency and do more to keep Australian companies operating in the future.

Another key to success, according to the OECD, is to avoid adding to the national debt through better management of government spending. With Australia exposed to swings in commodity prices, spending in boom times should be limited, lest it lead to debt that is increasingly difficult to pay back during slower economic years. Moreover, the report recommends a more refined spending package, arguing that political stability depends upon a decline in economic inequality. (Australia, placing its priorities elsewhere, is spending over $50 billion to build 12 new submarines.)

A more subtle observation within the report is that stability also depends on forward-thinking plans for education and innovation to ensure Australia’s success in the industries of tomorrow. Skilled workers suited to a global and technologically advanced economy represent a wise investment by any government, as such a result would ensure lasting value that would otherwise be subject to the whims of markets. An example of the latter is the slowing of the commodity market due to a downturn in the Chinese economy.

That slowdown, incidentally, is likely to affect Australian housing prices, as overseas demand accounted for roughly 20% of the value of all such transactions during the 2014-5 financial year. Increased housing prices have been a major source of wealth within the country, as house prices have ballooned by 250% in real terms since the mid-1990s.

As other countries have learned to their cost, over-reliance on such forms of income can be troublesome when prices stop rising – and, without a strong foundation propping up the rest of the economy, can be catastrophic should they begin to fall. Meanwhile, household debt in Australia is at record levels, with the debt to disposable income ratio rising to nearly 187% as of September 2016.

Should Australia reinstate its carbon tax or enter into a farther-reaching international pollution agreement, further adjustments across the economy are also likely to be necessary. Whichever policies end up being implemented, the country’s economy is sure to benefit from far-sighted prioritising of industries and a technological focus that puts the country at the leading edge of the globalised world of future trade. Rather than trying to guess at how long the old way of doing things will still work, Australia can earn itself true independence by developing an economy that no longer relies on them.


(primary source: http://www.cnbc.com/2017/03/02/australia-needs-to-hike-the-gst-if-it-is-grow-more-says-the-oecd.html)

 

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