Commission of Audit report paints bleak picture of the Australian economy
AXING 15,000 jobs, ending universal healthcare. All necessary as we head into a “cyclone” according to the Commission of Audit. But are things really that bad?
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“WE can’t keep heading into a cyclone and expect everything will be OK,” said Treasurer Joe Hockey yesterday after the Commission of Audit released its list of 86 recommendations to bring the government back to surplus.
Cutting 15,000 public servants, ending universal healthcare and installing a $15 fee to see the doctor were among the deep and drastic measures designed to save the country $70 billion a year.
It also recommended selling state-owned assets such as Australia Post, abolishing or merging more than 838 government bodies, cutting family tax benefits and making the pension much harder to access.
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Sound harsh? It is. And it tops off a week of political talk about “tough budgets” to secure the future, with Australians told to tighten their belts for the good of the nation.
“What this report proves is that we’ve inherited a mess,” said Treasurer Joe Hockey, adding that drastic measures needed to be taken to get the economy back on track.
But are things really that bad?
“There isn’t a crisis,” said Raja Junankar, an honorary professor at the Australian School of Business at UNSW.
“If you compare Australia to other OECD countries, we’re doing fantastically well.”
He said while the government is painting a picture of “ballooning government debt and an impending crash, this is patently not the case.”
His latest paper, Australia: The Miracle Economysaid the country has done “spectacularly well” in recent years compared to other OECD nations in a range of measures from GDP to debt ratios and unemployment.
“The government has come out screaming about debt. Everyone has debt, all major corporations, all major households have debt, as long as unemployment remains relatively low we’re OK, we’re not in for a crisis.”
Instead, Australia has remained recession free for 22 years, with inflation at 2.9 per cent and unemployment at 6 per cent.
Professor Junankar said it also has a low debt to GDP ratio when compared with its OECD counterparts.
“And yet if you listen to some politicians they believe that Australia is in debt crisis — but actually, Australia is in a far better situation than pretty much every other country. Until the population start listening to some of the facts, rather than myths about the economy, the negative stories will dominate rather than reality.”
CommSec chief economist Craig James agrees there’s no doubt the Australian economy is faring well.
“Any Reserve Bank minutes show it becomes very clear the Australian economy is in good shape. We’ve continued to grow, we seem to be managing a once in a generation spike in commodity prices,” he said.
The country has also managed to pull off a “remarkable transition” from mining to construction without a massive boom and bust. Unemployment is also relatively low, inflation is under control and the level of budget deficit is low compared to other nations.
Instead, Mr James believes the government is trying to “steel the nation” for medium-term challenges without wanting to acknowledge it’s not all doom and gloom.
“It believes we shouldn’t be sitting back and we shouldn’t be getting too conservative and comfortable and is trying to steel the community ... by doing that they’re not acknowledging we’re in good shape for that challenge,” he said.
AMP Capital economist Shane Oliver said Australia is nowhere near the emergency status seen in other economies.
“I don’t believe the debt is at a level that it poses a risk to Australia. It’s a million miles away from Greece, Italy, Spain, if we think we’ve got problems we’re kidding ourselves.”
He said reducing the deficit is prudent, but warned using harsh measures to do so could do more harm than good.
“I don’t think we have a short-term emergency that justifies tax hikes,” he said.
“If you start jacking people’s tax rates up they cut back spending. The last thing you want people to cut back spending because we need consumer spending to pick up from the rapidly receding mining investment boom. If you slug people with tax hikes it could actually weaken the economy which means the budget deficit could actually end up looking a lot worse.”
Mr Oliver said governments often run a deficit — where spending outweighs tax and other sources of revenue — when times are tough to pick up the slack from the private sector or invest in infrastructure. However they now should be looking at turning it around.
“We haven’t made the best of the boom. We should be in better shape but in saying that we’re a million miles away from crisis situation that European countries find themselves in. Rating agencies are not threatening to downgrade Australia. Bond agencies are not threatening not to buy Australian bonds,” he said.
So far, industry groups have slammed the Commission’s report, with the Australian Nursing and Midwifery Federation describing it as a “dark day for Australia’s healthcare system.”
CPA Australia chief Alex Malley warned focusing on spending only won’t provide the vision to meet challenges.
“Cutting spending in and of itself to meet an ambitious surplus target, conditional on implementing all the report’s recommendations in their entirety, will not provide a roadmap for long-term success and could even exacerbate the problem,” he said.
Do you think we need to cut back or is the country in good shape? Continue the conversation on Twitter @newscomauHQ | @Victoria_Craw | @CraigjamesOZ
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