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Sun, surf and birth of new economic model
By Peter Hartcher
Published: May 10 2006 20:03 | Last updated: May 10 2006 20:03


Unheralded and almost unnoticed, the world has seen the emergence of a new economic model.

It is a developed country that enjoyed faster economic growth than the US over the past decade. Yet it also offers universal healthcare and other social welfare benefits that the US does not. Unemployment is similar to America’s, but without the glaring income disparities that characterise US growth. It is a country that seems to have achieved a sweet spot, combining the vigour of American capitalism with the humanity of European welfare, yet suffering the drawbacks of neither. And it manages this while keeping a consistent budget surplus. That country, rolling into its 16th year of uninterrupted growth, is Australia.

“In the last decade of the twentieth century, Australia became a model for other OECD countries,” wrote the 30-nation club of rich economies in its latest annual assessment of the country. Australia, which started life as a dump for Britain’s criminal effluent, was such an unlikely candidate to be any sort of economic role model that it should give hope to others. Australia’s economic development in the twentieth century seemed to be arrested at the quarry-and-farm phase. And when the founder of modern Singapore, Lee Kuan Yew, forecast in the 1980s that Australians were destined to become “the poor white trash of Asia”, he seemed to know what he was talking about. In 1970, Australian per-capita incomes were the fourth highest in the world. In the 20 years that followed, its ranking fell inexorably. By 1991, Australia was placed 19th. Other countries surged. Australia stagnated.

That changed with the 1983 election of a Labor government. The partnership of Bob Hawke, prime minister, and Paul Keating, his treasurer, turned out to be a case study in the political management of a dramatic programme of reform. The Hawke-Keating years were followed by a conservative government led by John Howard, who pressed ahead with another wave of economic modernisation.

The net result has been 22 years of near-continuous reform. In the national budget announced on Tuesday, Peter Costello, the treasurer, polished the model a little further – he cut taxes for the fourth consecutive year and began a sweeping reform of superannuation to improve savings, while adding funding for national infrastructure and scientific research.

Australia’s per capita income is now ranked eighth in the world. In the last decade unemployment has halved. Net household wealth has doubled. Australia, brags Mr Costello, has become not the poor white trash but “the strongman of Asia”. Most economists see no early end to the expansion. “We are in a 20-year upswing,” says John Edwards, HSBC Australia’s chief economist.

Australia is a model in another sense, too. Its socio-economic arrangements offer an alternative to the two familiar options of the American versus the European. Mr Howard says the key is balance: “There is much in American society that I admire but I have long held the view that the absence of an effective safety net in that country means that too many needy citizens fall by the wayside. That is not the path that Australia will tread. Nor do we want the burdens of nanny-state paternalism that now weigh down many economies in Europe.”

The US may be a rich country but its bounty is very unevenly shared. One result is that for the broad mass of its citizens, America has the sort of health indicators of a much poorer country. Australia has chosen a more egalitarian policy set. Life expectancy is the fifth highest in the world. Child poverty is half the American rate. No one in Australia dies because of lack of health insurance.

But neither does Australia suffer the customary handicap that goes with a humane welfare system – a crushing burden of government spending. As a proportion of gross domestic product, total government spending in Australia is the third lowest in the Organisation for Economic Co-operation and Development and slightly less than in the US. The federal government has run a surplus in nine of the past 10 years. Last month it paid off all outstanding federal debt – the federal government is debt-free for the first time since the 1970s.

However, Australia is far from perfect and its reform drive has faltered in recent years. It has failed to manage properly the problems of its success. After such a long boom there is a shortage of skilled workers and the country suffers from underinvestment in new infrastructure. Further, it has a chronic current account deficit of a yawning 6 per cent of GDP. Economic reform is a continuous process.

Yet it has become a case study in the benefits of economic reform. It is a prototype society illustrating that vigorous capitalism can coexist with a humane welfare system.

The writer is an author, most recently of Bubble Man: Alan Greenspan and the Missing Seven Trillion Dollars, and the international editor of The Sydney Morning Herald
http://news.ft.com/cms/s/0a1b4d0e-e04a-11da-9e82-0000779e2340.html
 

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Economically we can still lower taxes by cutting the size of our government. More incentives for Australian's to save by raising the GST and corporate tax and lowering personal tax. More investment in education for after the resources boom.

We can still be a little more progressive in our social policies. We are nearly as conservative as the Americans in gay rights. We can still do much more to integrate our indigenous society with the mainstream australian society.

We can still improve on our environmental policies. Renewable sources of energy for our cities. Recycling of water. Developing water to much needed farms.
 

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Raising the corporate tax rate? are u kidding me? This will do nothing to assisting in raising Australia’s savings rate.

However, it will give a further incentive for Australian companies to move offshore and create an environment not supportive of entrepreneurialism. Australia is a country of small businesses REMEMBER! It will have the opposite effect of raising wealth and savings. Poorly conceived argument! The corporate tax rate is something that needs to be internationally competitive.

You are correct when you talk about a link between personal income taxes and the GST - however NOT in an Australian prospective. If the GST was a federal government revenue collector in an economic sense it would be highly efficient for the Australian government to raise the GST and lower personal income taxes (even introduce a flat income tax rate). However, the GST goes straight to the states so it doesn’t work in Australia.

In regards to the resource boom and industrialization as a whole, history clearly illustrates that resource booms have lasted between 25-35 years (Japanese industrialization, European industrialization and the American industrialization). Never before have there been two countries with 1 billion people each who are experiencing an industrialization phase together (China and India). Another situation that compounds the effect of increasing demand of resources is that 60% of Chinese live in rural areas and millions are moving to the cities every year (nothing like this has ever happened before).

Also remember that we are only in the 5th year of a global commodity boom. If this boom was to end in the next 2-10 years it would be the shortest commodity boom in the history of our planet. However, prices are likely to come down from their peak but don’t expect some long term correction. Commodity prices (in real terms) 6-10 years ago were the lowest they have ever been!!!. They are only just starting to correct that low point in commodity prices.

If you believe that China and India will continue to growth - then this commodity boom will last at least 25-30 years. If you don’t believe in their growth potential then resource prices are overvalued.

And to think Australia is home to the worlds largest amount of resources and close to 50% of uranium (the new gold)! Uranium will profoundly influence our wealth in this country like no other resource because:
>>Chinese cities are going to be forced to increase living standards by reducing pollution and the only way to do this is to use cost effective clean energy!
>> Merrill Lynch estimates that the Australian uranium industry will be a $50 billion dollar a year industry almost wiping out our annual current account deficit
>>Oil prices are high not because there is not enough oil but because of supply controls from cartels – while Uranium on the other hand has a supply/demand imbalance 10 times greater than OIL!!!!!
>>There is a world wide trend towards moving to nuclear energy
>>Australia holds 50% of all known Uranium deposits. WOOOO HOO!

And one last thing – there is no link between reducing personal income taxes and increasing savings cowface.
The best way to increase savings is by introducing incentives via superannuation!
 

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^Absolutely. I think it was a fantastic move for the government to remove all taxes when taking out your super after 60. It would be even better if they reduced or removed taxes when it's going in.
 

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yeah definately - but remember this isnt an election year - so hopefully next year (pre-election budget) the 15% contribution tax will be gone
 

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Discussion Starter · #7 ·
I think this really takes the cake in the whole article:

But neither does Australia suffer the customary handicap that goes with a humane welfare system – a crushing burden of government spending. As a proportion of gross domestic product, total government spending in Australia is the third lowest in the Organisation for Economic Co-operation and Development and slightly less than in the US.
Proportion of GDP total government spending is third lowest in OECD even slightly less than U.S. Yet the welfare spending is much more effective than most of the OECD.
 

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The Commonwealth needs to embrace welfare reform to better spread the wealth. Whilst ensuring the maintenance of unemployment pensions, we need to make it MORE profitable to work than not. The problem at the moment for many low-income earners is that they would actually have more money in their pockets if they went on the dole (when loss-of-benefits are taken into account). With a skills shortage and 5% unemployment, this poses a Golden Opportunity to get everyone into work and minimise poverty.
 

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Get rid of state governments and distribute Federal moneys directly to local councils to allow money to be targeted where it is needed most in the communities. This way we cut out the middle (and some might argue unecessary) level of government. Get rid of stamp duty for first home and first car buyers to give young people a leg up into property without directly lining the real estate agents pockets.

Let's start spending some of this surplus on seriously fixing our water shortage problems, addressing land salinification and erossion, and in developing public transport infrastructure. More money definately needs to be invested in this country in developing and building alternative energy sources which include ethanol plants, more wind and solar plants as well as water desalinification plants.

There is so much to be done, it's really only a question of where should we begin? That of course is not an easy question as everyone has their own opinion on that one. Perhaps what we simply need is a strong leader with vision. Beasley is not the man nor is Howard. We may have to wait some time before a truly charismatic and savvy leader with some truly strategic and nation building ideas emerges from our bland political landscape.
 

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Discussion Starter · #10 ·
Even if we remove the state government, the Federal government cannot micro-manage their funds very effectively. It needs a new body to co-ordinate where the fund goes.
 
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