Better Late Than Never

Well, it has been another very strong week in the stock market and for economic data generally around the world. All boding well for the Australian economic outlook.

This week, I would like to draw your attention to the fact that the major commentators in the media on the economy, organisations like the Australian Financial Review, are beginning to say the things we have been saying since 2009. Better late than never. The following are three images from today’s Australian Financial Review website.

With the first, it is nice to see someone at the Reserve Bank showing signs of understanding the underperforming nature of the Australian domestic economy. It remains the case that not only strong exports to the continuing booming China and re-accelerating Asia region but also China/Asian investment in Australia, contribute strongly and disguise the weakness in other domestic sections of the economy.

For a couple of years now, we have been highlighting the dire nature of Australian unemployment. “Dire” is not too harsh a word, as most of the rest of the world is doing so much better than us on this front. At last, at least some mention has been made of too high unemployment levels existing to justify rate increases by the RBA.

We have said since the last rate cut, a long time ago, that the official RBA cash rate would stay at 1.5% for 18 months or more. That the next move would, in fact, be a rate rise but these rate rises of the future would be few and far between, and with long plateau periods. Thereby continuing to support the economy as well as higher stock and property prices all along the way in perfect parallel. In much the same way as we forecast and have seen with higher stock and property prices in the US in tandem with higher rates there.

Our forecast remains for RBA rates to remain on hold at current levels for an extended period before the most shallow and slow rate hike cycle the nation has ever seen. There simply is no interest rate threat to the Australian economy, stock, or property markets.

One of other central themes argued and communicated with various senior politicians since 2009, has been that Australia desperately needs bold tax reform.

Our agenda remains a 20% company tax, and 20% top rate income tax rate, as an immediate essential requirement to maintain regional competitiveness. Since 2009, we have argued the tax policy should be about regional and global competition. Not at all about the pettiness of the domestic viewpoint and political minuscule point scoring.

Now, years later, we are seeing the AFR publish stories, taken from US media about how the head of JP Morgan is belatedly saying exactly the same thing. It is late, and Australia remains far behind the game, but at least it is finally being mentioned in the mainstream.

Meanwhile, in the US, they are moving quickly, albeit with the usual political infighting, toward truly bold tax reform!

Australia should have done this in 2009/10? And we are still not seriously talking about it?

There is much work to be done on returning our nation to its once strong productivity ranking. We have fallen further behind the rest of the world in recent years when there was no need to do so. At least now there are signs of increased discussion on the topic. As we so sadly know about economic debate in Australia, if the person speaking has an American accent, then we pay more attention. A very sad chip on our shoulders, but that is how it is, unfortunately.

Australia will not be turned into the great nation on the world stage it once was, anytime soon, but there are at last the first real signs in a decade that there is hope.

Last, but not least, to highlight the point of how long it takes some commentators to publish the obvious. We have been saying this since December 2008!

Clifford Bennett

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