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The big election myth - is the economy strong?

By Valerie Yule - posted Wednesday, 24 October 2007


Almost all voters believe that Australia has a strong economy. They are being constantly told that. Voters and broadcasters need to know the full picture, to understand why Peter Costello is not driving his debt truck around this time, and why the ALP is also muted. Sixty-seven percent of the public can cheerfully think that health is the major election issue, unaware of what is looming for post-election. What do they need to know?

Australia’s gross foreign debt is now $473 billion and increasing, up from around $78 billion in 1986. The major component of gross foreign debt is borrowings from overseas by residents of Australia, and includes borrowing by banks at low interest in order to lend to indebted Australians at higher interest. It is now 74 per cent of GDP, with the annual interest burden growing accordingly.

Our trade deficit soared to a record $2.7 billion more imports than exports in January 2006, more than double the most pessimistic forecasts. This was at a time when exporters were enjoying the best prices in 30 years. Our exports of $99 billion were down from $120 billion in 2001, (when 40 per cent were ores, coal and metals, and 20 per cent each from rural, manufactures, and services, showing how much we have relied on the minerals boom).

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Our imports include most of our consumer goods, including manufactures. Food imports - in a country once confident of helping to feed the whole world - are increasing at a rate faster than exports, and by 2002-3 represented 27 per cent of our total food export value. The increase in food imports by 66 per cent from $3.6 billion in 1996-97 to $6.1 billion in 2002-03 contrasts with food exports that increased by only 29 per cent from $17.2 billion to $22.3 billion over the same period. Australia’s imports of horticultural products alone were greater than exports by $24 million in 2002. The further marked decline in food exports since 2002 has resulted mainly from the drought. This decline is likely to worsen. The whole foodbowl of the Murray-Darling basin is threatened, with irrigators receiving no water allocations at all, and dry-farmers also suffering badly.

Personal debt is at a record high on the domestic scene, and is increasing. Our population of  just over 21 million has a total household debt of approximately $650 billion - about $32,500 for every man, woman and child - up  from $590 billion in 2002. Household debt has risen much faster than household disposable income. The Reserve Bank reports that in 1992 the ratio of household debt to disposable income was about 1:2 or 50 per cent; by 2002, this value had risen to 1.1:1 or 110 per cent. This ratio is higher even than America and the UK. For every $100 we earn, we owe $130. Credit and charge cards account for $26 billion of the debt., and borrowings to purchase residential property have risen dramatically (CBA 2007).  Mortgages can now take a lifetime to pay off.

Keeping pace with rates of growth of debt is the growth of gambling, not merely for entertainment, but as an attempt to cope. The total net takings from gambling during 2004-05 were $15,459.7m, representing an expenditure of $996 per head of adult population. Ironically, bookmakers report that $4 million is already being wagered on the present election, but the biggest gamble is that taken by the political parties attempting to ignore the realities of our situation, and the tasks needed for the future.

Why are people so sanguine about our economic situation? Look at the figures that are selected for public consumption.

Government debt is nil, mainly due to selling off public assets and minimum expenditure on infrastructure and research and development to prepare for climate change and peak oil. More revenue-raising public sales are planned, with the last tranche of Telstra to go.

The proud claim of an unemployment rate of only 4.2 per cent is achieved by including everyone with over one hour’s paid work a week.

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Gross domestic product (GDP) has grown by 3.6 per cent since 1996, but we should be aware of the nature of much of the economic activity that goes into this grab-bag.

GDP represents the total market value of all final goods and services produced within a country in a given time period, and is the sum of consumption, investment, government purchases and net exports. GDP therefore rises as a flow-on from rises in property values, as non-productive investment in property increases, as expenditure on social problems increases, and as disasters take up money and manpower. "Growth" per se does not necessarily equate to improvement in quality of life.

We could be further unsettled in our smugness at our economic situation by observing how major investment is switching from production to meet needs, to the uncertain security of property. There is an economic imbalance in the distribution of employment, so that many essential occupations are in such short supply that we must import professionals, tradesmen and seasonal workers.

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Article edited by Allison Orr.
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About the Author

Valerie Yule is a writer and researcher on imagination, literacy and social issues.

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Related Links
ABS: Gambling statistics
APH: Household debt and savings ratio
Australian trade deficit grows
Australia's $403 billion foreign debt
Drought drives trade balance into red

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