Our mining boom is over, and we spent much of that money earned on our ongoing housing boom. Effectively, we borrowed what we earned. On the back of that, our dollar held firm and rose, whilst our Superannuation policies meant that we were largely protected from the GFC.
Ask not what your country can do for you, but what you can do for your country – John F Kennedy, former President, USA
That kept interest rates high when the global trend was down, which further protected our dollar and simultaneously propelled our house prices like jet fuel.
But that high dollar made our exports less competitive and decisions were made to abandon car manufacturing in particular. It also sent households into a spending spree, as the high dollar fueled consumption.
So we’ve lost our automotive industry and now the dollar is sinking, with interest rates following suit. We are probably within 6 months of losing our triple-A public sector credit rating, and running twin deficits on a falling interest rate. With a traditional reliance on foreign capital when the USA is raising rates, it puts us in dark territory.
Add to that a bloated appetite for spending, which has become ingrained in our culture, and we have a recipe for disaster.
The construction sector is strong, but it’s in a maze of twin parallels: housing is under-supplied and relies on unlocking infrastructure which creates debt; apartments are in over-supply and being funded by Asian investment, with huge volumes still to come onto the market, lying empty but unaffordable.
My bet is that the Australian economy will sink significantly over the medium term, unless we start to change our ways and adopt a culture of investment in new economies, while getting away from unnecessary spending largess. Australia should adopt a tighter thinking about long-term structural change.
So much of our investment decision making is geared to short-term decision making by Super funds which – ironically – were our silver angel post-GFC, ensuring that we had enormous amounts of money still pouring into the stock market, looking for a home. But Super funds have become more diverse and competitive, needing to show members performance on a short-term horizon.
Wise investment decisions tend to play-out over longer panels of time. So unless we can bridge this gap between short-term social expectations and more medium-term corporate decision making processes, we can’t expect to have an optimal long-term pattern.
So the conclusion of this is Federal and State government policy-making, with a top-down approach where there is bilateral cohesion on basic principles. Australia has fallen into this trap of playing the man, not the ball (imagine this state of affairs, in a nation of sporting champions and fanatics, with the biggest love of sport in the world and boasting the preeminent stadiums.
Bipartisan policy agenda will bring positive change. Australia has to start getting away from “what’s-in-it-for-me” thinking and go back to our original foundations and the Australian spirit of “what can I do for my country”.