Amid all the controversy over the children overboard and the Governor-General, the Australian economy has been bubbling along quite nicely, thank-you very much.
Figures issued yesterday show that in the December quarter the Australian economy grew by 1.3 per cent, to make an annualised growth rate of 4.1 per cent. That is a much better result than most industrialised economies.
The Government can take considerable credit for that. Despite its ghastly divisive social record, it has managed the economy better than the Hawke-Keating Governments in critical respects. Under its tenure, interest rates have fallen dramatically. This has reduced the amount people have to pay on their mortgages, thus improving the living standards of many Australians. It has also ensured that the value of savings of retirees and other in the form of cash and liquid deposits has not been eroded. The low interest rates have been the result of fiscal rectitude in the early years of the Howard Government. It took the hard decisions on Government spending and hauled the Budget into surplus, despite the pain and screams from those who had hitherto benefitted from large government spending programs.
The growth figure come despite recession in Japan and a marked slow-down in the US economy after the dot.com bubble burst.
The Government did lapse in the lead up to the election with an unwarranted spending splurge, but by and large it has resisted the temptation to spend all it receives and more.
However, the Hawke-Keating Governments can take credit for a policy that has helped Australia weather first he Asian economic meltdown and then the US-Japan slowdowns – the floating of the currency. Under the Howard-Costello Government the dollar has dived from around 70 US cents to around 50 US cents. But that is a small price for the stability in other parts of the Australian economic that have flowed from the deregulated currency.
The growth figure will present the Reserve Bank with some difficulty. It will require a delicate balancing act of monetary policy. The Reserve Bank has an objective to control inflation and encourage employment. It must be careful not to over-estimate the heat in the economy. There is little evidence to suggest that the economy is over-heating. Unemployment remains stubbornly at 7 per cent. Although there are increases in the vacancies and an increase in full-time job growth compared to part-time and casual job growth – signs of a more buoyant economy – it should not be enough for the Reserve Bank to reach for the interest-rate lever. Or if it does it should not pull it too hard. The danger is that the Reserve Bank will act too prematurely and nip an economic boom – with the benefit of lower unemployment — in the bud.
The danger is that the Reserve Bank, the Government and economic commentators under-estimate Australia and its capacity for economic performance. Australia has undergone steady reform of financial and labour markets, steady reform of welfare and government-spending programs and a gradual privatisation program. We have not had radical New Zealand and Thatcherite reform programs which have ultimately had costly repercussions through widening inequality and societal friction. Our federal system and the brake of the Senate have been cursed by many, but they have tempered the pace of change, seemingly to Australia’s long-term advantage.
Again, the growth figure indicates there is no need for radical increases in immigration to improve standards of living. Nor is there a need to cut it back substantially.
It may be boring, but steady change appears to be winning the race.