Living standards to fall

[Redom]

Todays news is reporting that living standards are set to fall over the medium run without significant productivity improvements, with some high profile economists/ex political leaders talking at some forum.

Pretty consistent message coming out of Canberra over the last 12 months trying to adjust expectations/public debate.

Note sure what the rules are for posting links, but the article is here. Most commentary is half way down. Also theres some commentary in todays AFR by Greber.

http://www.smh.com.au/business/the-...omy-in-danger-of-stalling-20140721-zv7hx.html

 

[datto]

With this current govt it is understandable that living standards will drop esp for pensioners, the unemployed, the sick and incapacitated, students and the lowly paid. This is where the finger has been pointed to fix up the budget. Not the top end of town, that would be unconscionable.

 

[tom32]

I think it is a broader issue than which government is in power. The same way Howard and to a degree Rudd saw over a thriving economy as the investment dollars continue to taper off in Australia there will be impacts throughout the economy no matter who is at the helm. The damage was done, so far as fiscal policy can, at the peak of this cycle now we wear the consequences.

Even Keynes suggests saving during the peaks to spend in the downturns. Who would have though Keynes was more responsible fiscally than Costello and Howard?

The two most likely ways our living standards could fall I reckon is:

1: australian dollar falls. We have inflation in all imported goods. We then get growth in demand for local labour to offset fall in investment and even get some new investment in manufacturing and local production. While interest rates would rise in this scenario I think the RBA would be slow to act given it is likely unemployment will be high as well. High inflation potentially negative real interest rates. Probably housing as good an asset as any to be in over the longer term over this scenario. To compete in manufacturing though our real wages have to fall so while this may be good for nominal house prices remember back to 2004 for how this will feel when you go on holidays or buy a new phone, TV, fridge or oven etc. well oven might be ok as we still make them.

2: unemployment continue to increase. Real and nominal wages fall and for reasons unknown to me the australian dollar continues to stay above 90c US. Our taxes have to be increased further eroding our take home wages. I don't like this one for housing. I would like to think if this scrnario started to eventuate politicians would do what they always have in tough times and go option 1. we do have an independant RBA now which makes it more difficult than it has been in previous major mining investment cycles to adjust interest rates just to suit the majority of voters in an inflation event.

 

[D.T.]

With this current govt it is understandable that living standards will drop esp for pensioners, the unemployed, the sick and incapacitated, students and the lowly paid. This is where the finger has been pointed to fix up the budget. Not the top end of town, that would be unconscionable.

Its called productivity. If you have it you get rewarded for it.

 

[MarkB]

I think it is a broader issue than which government is in power.

Yeah, I think it was always going to happen at some point.

We've had 30 years now of almost continuous reforms in one form or another that have cut across just about all aspects of society dating back to Hawke / Keating in the 1980's.

The Accord > Enterprise Bargaining > Individual Contracts
Deregulation
Privatisation
Corporatisaton
Removal or reduction of tariffs / quotas / subsidies
The floating of the $AUD
The GST
etc and so on

Not saying that more can't be done (the Future Tax System Review is an example of what ideas exist) [or abolishing at least one tier of government which is something I would be happy to see].

But I do wonder if we need to be a bit smarter about this going forward.

All this effort into slicing and dicing the pie so as to get the optimal allocation with the least loss possible - but not as much effort put into growing the pie.

And, tbh, we'll always find someone overseas who can do what we do - at a lot less cost. There are some exceptions, but generally speaking competing on price (competing on being efficient) is, in that respect, false economy.

Imo we need to be better.

Not cheaper.

 

[Macca]

A little bit biased fellas

I agree that in the run up to the election Howard did make welfare available to the middle classes but if re elected he may have removed it.

Costello did take advantage of the good times, he used them to pay down the inherited debt from the previous Labor government and at the same time allowed some of it to flow through to keep the economy bubbling along.

Rudd/Swan govt was the one who screwed up royally, inherited a strong economy and stuffed it completely. Just because you Can borrow doesn't mean you do then have a big party.

Julia Gillard was so naive that she didn't realise that Labor was on the nose before she even got to be PM so she poisoned Oz to make life difficult for the obvious change of Govt.

Is Tony Abbott a good PM, is Joe Hockey a treasurer, NO to both, but they are doing their best to repay the debts that were created by others and have very little wiggle room.

For the record, I will vote for the side that is the most fiscally responsible in both state and federal politics as we do not have the right to leave a debt to the next generation.

 

[MarkB]

A little bit biased fellas

Pot. Kettle. Black.

Costello did take advantage of the good times, he used them to pay down the inherited debt from the previous Labor government and at the same time allowed some of it to flow through to keep the economy bubbling along.

Rudd/Swan govt was the one who screwed up royally, inherited a strong economy and stuffed it completely.

A very selective view on recent Australian economic history imo.

 

[Macca]

Pot. Kettle. Black.

A very selective view on recent Australian economic history imo.

Just offering a balance to the earlier posts Mark, my position put on record in my first post.

 

[plusnq]

Yeah, I think it was always going to happen at some point.

We've had 30 years now of almost continuous reforms in one form or another that have cut across just about all aspects of society dating back to Hawke / Keating in the 1980's.

The Accord > Enterprise Bargaining > Individual Contracts
Deregulation
Privatisation
Corporatisaton
Removal or reduction of tariffs / quotas / subsidies
The floating of the $AUD
The GST
etc and so on

Not saying that more can't be done (the Future Tax System Review is an example of what ideas exist) [or abolishing at least one tier of government which is something I would be happy to see].

But I do wonder if we need to be a bit smarter about this going forward.

All this effort into slicing and dicing the pie so as to get the optimal allocation with the least loss possible - but not as much effort put into growing the pie.

And, tbh, we'll always find someone overseas who can do what we do - at a lot less cost. There are some exceptions, but generally speaking competing on price (competing on being efficient) is, in that respect, false economy.

Imo we need to be better.

Not cheaper.

I think we are fighting the economic trend of deflation due to the constant innovation of technology. We simply need less people to do the same work that was was done twenty years ago. Although some new jobs are created and those who embrace the new technologies become more productive, many more jobs have been lost due to the increased efficiencies via technology such as secretarial duties, factory workers, and other low to mid level jobs. This is similar to the trend during the dawn of the industrial age where the creation of the new jobs lagged the loss of the older agrarian based jobs that were dominant previously.


For sure, Governments at all levels, (and I agree we have too many levels in a country as small as Australia), can be more efficient and effective with their delivery of services and associated costs. Certainly we need to better define our social safety net and how much we can afford to offer.

But I am interested Mark in how you think we can grow the pie and look after those who are left behind?

Cheers

Shane

 

[datto]

Rudd/Swan spent the surplus they inherited (from our hard earned dollars) because they had to. They saved us from the GFC ( remember that thing). Job well done! What did you do with the money you got? Spend it or give it back because it was a waste of the nation's money? Let the truth be your judge! I spent mine.

 

[Redom]

Hmm, 'Costello taking advantage of the good times' is a great myth. It was easy to pay down the debt and that should never have been the benchmark given the environment he was playing in.

I'm not sure why people assume government = economy. This is about the economic drivers at play in Australia over the next decade.

The factors are: massive terms of trade decline and a fall in labor utilisation (ageing population), leading to a decrease in income that needs to be offset somehow to maintain current expectations of income growth.

Policymakers have a large influence, sure, but you can't control those factors. I promise you, its neither Gillard/Abbot/Rudd/Santa's fault that the population is ageing or the terms of trade are declining. Although i'm sure most Australian's will point the finger naively somewhere.

A little bit biased fellas

I agree that in the run up to the election Howard did make welfare available to the middle classes but if re elected he may have removed it.

Costello did take advantage of the good times, he used them to pay down the inherited debt from the previous Labor government and at the same time allowed some of it to flow through to keep the economy bubbling along.

Rudd/Swan govt was the one who screwed up royally, inherited a strong economy and stuffed it completely. Just because you Can borrow doesn't mean you do then have a big party.

Julia Gillard was so naive that she didn't realise that Labor was on the nose before she even got to be PM so she poisoned Oz to make life difficult for the obvious change of Govt.

Is Tony Abbott a good PM, is Joe Hockey a treasurer, NO to both, but they are doing their best to repay the debts that were created by others and have very little wiggle room.

For the record, I will vote for the side that is the most fiscally responsible in both state and federal politics as we do not have the right to leave a debt to the next generation.

 

[Redom]

Playing this all back to the housing market, i think the key risk is that Australians (and Governments) do not adjust their expectations for income growth over the next decade.

If we know that the key long run drivers of growth are working against us - then we need to lower our expectation of income growth.

We can use monetary policy to sustain our income growth level - like we're using now while we're transitioning to other sectors. But we cant do this over the long run. We'd effectively be lowering rates to prop up growth constantly to the past 'trend'. If its not very carefully managed, it creates serious financial stability risks.

 

[MarkB]

But I am interested Mark in how you think we can grow the pie and look after those who are left behind?

Free to air p*rn on the ABC late at night -> baby boom in precisely the sort of people we want to breed.

 

[willair]

Todays news is reporting that living standards are set to fall over the medium run without significant productivity improvements, with some high profile economists/ex political leaders talking at some forum.

Pretty consistent message coming out of Canberra over the last 12 months trying to adjust expectations/public debate.

Note sure what the rules are for posting links, but the article is here. Most commentary is half way down. Also theres some commentary in todays AFR by Greber.

http://www.smh.com.au/business/the-...omy-in-danger-of-stalling-20140721-zv7hx.html

Sometimes the Economists,that the media use with their forecasts still look in the rearview mirror they get too dissy when they look ahead..

 

[plusnq]

Free to air p*rn on the ABC late at night -> baby boom in precisely the sort of people we want to breed.

Visit the Emergency department any Friday or Saturday night in a major metro hospital. It shows just what Australia is up against in having a reasoned discussion on the best way forward for the country

 

[BayView]

Todays news is reporting that living standards are set to fall over the medium run without significant productivity improvements, with some high profile economists/ex political leaders talking at some forum.

Pretty consistent message coming out of Canberra over the last 12 months trying to adjust expectations/public debate.

Note sure what the rules are for posting links, but the article is here. Most commentary is half way down. Also theres some commentary in todays AFR by Greber.

http://www.smh.com.au/business/the-...omy-in-danger-of-stalling-20140721-zv7hx.html

It's not even a news topic.

Look at your own household; unless you are in the minority of folks whose industry has seen fabulous wage increases in the last 5 years, the majority of folks are experiencing ever-increasing living costs across the board, while wages are not going up by much.

 

[sanj]

It's not even a news topic.

Look at your own household; unless you are in the minority of folks whose industry has seen fabulous wage increases in the last 5 years, the majority of folks are experiencing ever-increasing living costs across the board, while wages are not going up by much.

bzzzzzt incorrect

real earnings, ie earnings after inflation is taken into account, have increased over the last decade

 

[MarkB]

real earnings, ie earnings after inflation is taken into account, have increased over the last decade

True.

Real Wages have increased over the last decade - quite markedly according to that graph.

Though the graph also shows that we've slipped a bit in the last couple of years (so Bayview might actually have a point).

See: "THE 2014-15 BUDGET AND SUSTAINING BROAD BASED GROWTH IN LIVING STANDARDS", speech by Dr Martin Parkinson PSM, Secretary to the Treasury, 20 May 2014

But the concern is that the halo is about to slip without some further reforms.

The world is catching up.

From Martin's speech -

Conclusion

Australia?s twin challenges of restoring fiscal sustainability and driving strong growth in living standards are not unique to us.

Indeed, much of our domestic policy agenda has echoes in the G20 policy agenda.

Internationally, there is now agreement on the need to run sound medium-term macroeconomic policies which are sensitive to near term conditions. But unlike many other countries, Australia has the freedom to actually do this.

Similarly, the G20 jobs and growth agenda has a clear focus on the need for structural reform across a wide range of areas ? especially infrastructure, competition and labour markets. Embarking on a comprehensive set of reforms is also seen as a positive-sum game ? internationally, benefits are maximised by spillovers between countries; domestically, the effectiveness of reforms in one area is reinforced and leveraged by reforms elsewhere.

Reform ? international and domestic ? also helps reduce the likelihood and impact of adverse shocks ? and the world offers many opportunities for shocks that could derail Australian economic prosperity.

This in turn reinforces the case for improving our fiscal sustainability in order to buy us the insurance we need to be able to respond to any adverse external shocks.

It is, therefore, squarely in Australia?s national interest to pursue macroeconomic, structural and fiscal strategies which deliver these outcomes.

Moreover, it is squarely in Australia?s national interest to use our G20 Presidency to highlight the importance of such reforms globally, and to set an example through implementation. If the G20 is to deliver a 2 per cent boost to world GDP over the next five years, Australia needs to play its part.

We need to recognise that Budget measures that aim to increase Australia?s economic potential through productivity growth and workforce participation are only the first step, though, if we are to sustain reasonable growth in living standards.

It is also important that we realise the full potential of the opportunities that will be presented by current and forthcoming inquiries and White Paper processes in areas such as competition, the financial system, workplace relations, tax and the Federation.

Finally, it is also useful to recall that the economic reforms during the 1980s and 1990s faced stiff opposition at the time, but ultimately transformed Australia into a globally competitive economy and set us up for more than two decades of continuous economic growth, the benefits of which have been broadly shared.

As we look to the challenges before us, we again find ourselves at a critical juncture where it is only through ambitious reforms pursued in the national interest that Australians will continue to enjoy amongst the highest living standards in the world.

 

[Redom]

Real wages have definitely increased. The component breakdown in Martins speech is there over the last 4 odd decades. The mining boom helped boost real wage growth in noughties.

Now the different componenets that make up real wage growth are now working against us (labour utilisation, terms of trade). Productivity growth will need to make up a serious shortfall to maintain living standards.

Theres a very good model line that shows how much productivity will need to grow by to get 0% real income growth and trend income growth. From memory, we'll need it to hit 3%+. Thats 1990s levels, where we undertook a series of low hanging fruit reforms. Not enough scope to do the same or political courage.

 

[Deltaberry]

I don't believe it's as bleak as people paint it.

Our global buying power will probably diminish because Asians get richer (subsantially richer than Australians), eclipse us in population and our currency will revert to around 70c in the long run. This however only drives inflation and exacerbates the divide between the rich and poor in this country, ie if you are an asset holder, you should become relatively richer than your fellow Australians. And if you are a big asset holder, you will become significantly relatively richer than your fellow Australian.

As far as the productivity of our country goes, has poor productivity or general laziness ever stopped high asset prices making Indonesian or Malaysian property owners very rich? Nope, it simply stops the rest of the population getting rich.

Some politicians should spend more time playing the video game Civilization V to learn how to govern a country. They probably wouldn't get very far in it.