Australia's Economic Future

So due to spending an absorbant amount of time focusing on issues over which they have no control, the coalition is faced with a few small obstacles in the near future...

Sadly Mr Howard has been made aware of Australia's ageing problem and over the past few years he has maintained his single minded financial approach in order to continuely secure the vote of the elderly.
When it was in cost-cutting mode, back in its first term, pensioners benefited massively from the decision to index pensions to male total average weekly earnings, rather than the consumer price index.
And when the spending floodgates were lifted ahead of the elections in 2001, the government’s consciousness of the growing electoral clout of the ‘grey vote’ was again apparent in the $600 cash bonus for pensioners, and in the decision to allow senior citizens to earn up to $32,612 before being required to pay income tax (compared with, say, $13,000 for a single-income family with a child under five).



As he seems so fond of doing Johnny hasn't really considered the sustainability of such policies...Australians aged 65 and over are expected to account for around 22 per cent of the population in forty year’s time, compared with just over 12 per cent today.
As a result, the cost of age pensions is projected (by the OECD) to rise from around 1½ per cent of GDP to around 4½ per cent; while total (public and private) health care costs could rise from the present 8½ per cent of GDP to around 15 per cent.

Other things being equal, an increase in the share of national income taken in taxes of between 7 and 8 percentage points would be required to meet the budgetary costs associated with such change..It's been suggested that required tax increases could be equivalent to tripling the GST..even if that is an exaggeration tax increases will still be required to deal with such an increase on the system.



So Johnny has a few options: increase tax so future retirees may enjoy equal public benefits to their predecessors, ie we pay more tax in order to secure the same value of senior life..

Or he can decrease funding originally intended for long term issues; the environment, the skills shortage or perhaps even the abhorrent inhumane treatment of asylum seekers...

Or he can begin to contemplate measures intended to slow the rate at which the ‘baby boom’ generation stakes an increasing claim on the public purse, and increasing the share of their lifestyle and health care costs which are met from their own resources...self funded retirement

Now naturally any kind of tax increase would undermine Australia’s economic growth rate, something Johnny is quite fearful of no doubt, it would accelerate the departure of talented Australians at the prime of their working lives, and act as a disincentive to capital investment..

Failing to tackle the environmental issues, or the skills shortage, will have seriously detrimental effects both socially and economically...

So what's left?
The recent trend towards allowing senior citizens more generous access to the public purse than either earlier generations of senior citizens enjoyed, or other citizens currently enjoy, though undoubtedly unpopular with at least some of their number, appears to have the fewest economic or social consequences beyond perhaps reducing the inheritances to which some of their dependants might otherwise be entitled...

The OECD has estimated that if tighter targeting of the age pension reduced eligibility to (say) 30 per cent of the elderly population from the present level of around 70 per cent, the cost of pensions would be roughly halved as a percentage of GDP by 2030.

Jolly good then, the age at which people become eligible for the pension – which, when it was set at 65 for males in 1909, was above the average life expectancy at birth – could be raised gradually, as it is being for women (from 60 to 65 by 2020) and as it is in countries such as Sweden and the United States.
The rate at which the ‘preservation age’ (the age at which superannuation savings can be accessed without foregoing concessional taxation treatment) is being raised from 55 to 60 (under present legislation, between 2015 and 2025) could be sped up..
The pension assets test could be amended to include the value of owner-occupied housing above a given value in determining the eligibility for pensions..

So yet again due to an apparent inability to forecast any kind of long term plan it seems the coalition has dug a hole..none of the above options are very positive, but when it comes down to figures it's pretty clear which choice Johnny is going to be leaning towards.

Now to be fair Johnny has made a few comments in regards to Australia's economic future..

Australian Prime Minister John Howard said Thursday in Sydney that Australia regards China as crucial to Australia's economic future as China is rising as a major customer to Australia's exports.

He reiterated Australia's One China policy, saying "we have One China policy and we encourage everybody involved to settle outstanding differences in a harmonious, amicable fashion."
April 15, 2005

Looking at the global economic environment over the last few decades tells you Asia’s share of world output has risen noticeably, and that the share of the developed OECD countries has fallen.
Most of Asia's growth is directly attributable to China, and even with the Asian crisis the area still comes out on top.
So it's no suprise that's where Johnny is currently focused on the biggest growth area..perhaps forgetting he signed a bilateral preferential trade agreement (a trading bloc which gives preferential access to certain products from certain countries, like the effect of US agriculture subsidies on crops like corn, making US corn cheaper and more abundant, on the Mexican economy, leaving Mexicans worse off than before the agreement..)

In the year following the agreement, Australian exports to the U.S. declined, while U.S. exports to Australia increased. This followed the International Monetary Fund's prediction that the Australia-United States FTA would shrink the Australian economy marginally because of the loss of trade with other countries. The IMF estimated $US5.25 billion of extra U.S. imports entering into Australia per year under the FTA, but only $US2.97 billion of extra Australian exports to the U.S. per year..

The FTA improved the overall U.S. trade deficit situation with Australia creating a trade surplus with Australia which rose 31.7% in the first quarter of 2005, compared to the same timeframe in 2004. U.S. exports to Australia increased 11.7% in the first quarter of 2005 to nearly $3.7 billion for the quarter. Agriculture exports to Australia were up 20%...

The FTA is ridiculously one sided and it cemented our relationship with the bullies of the world, with whom China has a rather rocky relationship...

Destination of Australia’s Foreign Direct Investment
Per cent of total stock as at 30 June
1982 1992 1997 2002
US 13.1 26.3 28.0 47.8
European Union 17.2 34.9 37.4 22.2
Japan na 0.5 0.3 0.2
Non-Japan Asia 34.6 16.4 12.6 7.4

It seems we've made our intentions quite clear, despite Johnny saying something completely different as he is so fond of doing..