The “exceptional” economy of the Australian budget
Exceptionalism has long been a stock in trade of Australia’s ruling class, its state and its ideological agencies, promoting the myth that the country and its economic system are somehow insulated from global storms and tensions.
This myth has suffered a hammer blow due to the experience of the Omicron variant which, since December last year, has torn the population apart, heavily affecting children as well as the ongoing floods and other extreme weather events, which , whatever their immediate causes, are rooted in global warming.
But in the realm of economics, the myth of exceptionalism continues to be promoted. It forms the basis of the economic analysis prepared by the Treasury Department for the Morrison government’s pre-election budget presented on Tuesday.
Statement 2 of the budget documents presents a picture of the Australian economy experiencing increased growth over the next period and once again offers a forecast – made many times before but never realized – that there will be an increase in real wages, ending stagnation and cuts over the past decade.
Significantly, the document begins with an overview that focuses almost entirely on the national economy, followed by a brief summary of international conditions, as if the global situation is just some sort of add-on, perhaps interesting but not significant, before returning to the national situation. economy.
The opening sentence of the analysis summarizes the method throughout. Australian capitalism will weather the storms of global turbulence virtually unscathed.
“Australia’s economy,” it begins, “has proven to be remarkably resilient to the continued impacts of the pandemic, consistently outperforming expectations and all major advanced economies.”
He recognizes some problems, but the conclusion is the same. “The ongoing pandemic, strained supply chains and growing inflationary pressures all pose risks to the global and domestic outlook. Nonetheless, the resilience of the Australian economy throughout the pandemic demonstrates that the economy is well placed to adapt to these new developments.
The statement said the private sector should be the main driver of growth and pointed to a “record pipeline of work in the residential construction sector”, not even mentioning the series of construction company bankruptcies in recent weeks.
The Treasury warns that the pandemic will continue to pose a risk, with the potential for the emergence of “new, more virulent or vaccine-resistant variants of COVID”.
But nothing will be allowed to stand in the way of the accumulation of profits, as no public health measures “should not materially affect the economic forecast”.
The increasingly tense international economic situation is presented as a kind of backdrop to events in Australia, rather than a driving factor, and therefore receives little attention. The basic position is that the global recovery has gained ground and is expected to continue through 2022 and 2023.
This despite warnings from international bodies such as the OECD that the disruption of energy and commodity markets resulting from the war between the United States and NATO against Russia, following the invasion of Ukraine, will reduce global GDP growth by 1% and add 1.5 percentage points to the overall inflation level.
Again, world events are seen through the national prism.
“As an energy and food exporter with very limited direct exposure to Russia, Australia is better placed than most countries to absorb the economic effects of the conflict and associated disruptions,” the document states. of the Treasury.
Expanding on its analysis, it appears the Treasury has its sights set on stock markets, which have yet to show a meaningful response, at least so far, to the mounting global financial crisis.
However, as the FinancialTimes (FT) noted in a post this week on the apparent calm in the market “commodity markets are chaotic, fueling uncomfortably high inflation, and global economic forecasts have been downgraded as a result.”
He then listed a series of factors, including soaring inflation, rising interest rates, tech stocks under pressure, debt problems in developing countries and the coronavirus, which could interact with each other. with others “in dangerous and unpredictable ways to create unforeseen problems. ”
World Bank chief economist Carmen Reinhardt, who has studied financial crises, warned that the financial ripple effects of the Russian invasion could be enormous.
She noted that the share of advanced economies with inflation levels of 5% or more has risen from zero a year ago to almost 60% by February 2022, even before the Russian-Ukrainian disruptions produced their full impact.
However, for the Treasury, such an escalation seems of little concern as it expects inflation in Australia to reach 4.25% in the June quarter of this year, but will remain “well below that of most other advanced economies”. .
The budget has been touted by the government as showing how its policies are driving a growth spurt. Yet, as financial journalist Michael Pascoe has pointed out, growth of 4.75% this calendar year, supposedly “leading the world”, will drop to 2% in 2023.
He cited other data pointing in the same direction. Housing investment growth is projected to rise from 3.5 percent in this fiscal year to 5.75 percent in 2022–23 before falling back to minus 0.5 percent in 2023–24. Business investment is projected to increase by 9% in 2022–23, then fall to just 1% in 2023–24.
Given its importance to the Australian economy, one would have expected an analysis of the Chinese economy in the Treasury document. But he notes only one paragraph where it is noted that its growth is expected to be around 5% for the next three years, well below previous levels.
This under conditions where China’s economic and financial problems are worsening. As a commentary by economic analyst Ruchir Sharma published in the FT noted, “no other major country shows deeper chasms of economic problems.”
Due to the financial crisis surrounding real estate giant Evergrande and other companies, property developers are illiquid, cash-strapped or unlikely to survive, and major Chinese lenders are reluctant to provide new loans. The result is that developers have to go abroad to seek cash at very high interest rates.
Sharma warned that China is looking more and more like 1990s Japan where no amount of central bank stimulus will encourage increased credit and economic activity.
China’s slowdown, already reflected in declining GDP growth estimates, has major implications for the Australian economy.
In the aftermath of the 2008 global financial crisis, Australian capitalism was able to escape its worst effects not because of inherent “resilience”, but because of a boom in mineral exports fueled by massive mining programs. infrastructure and housing led by the Chinese government. It’s not going to repeat itself.
According to the Treasury, emerging markets are expected to grow faster than advanced economies in 2022. However, he then adds that they are vulnerable to the effects of the Ukraine crisis due to their exposure to rising fuel and agricultural commodity prices. as well as the fact that they are affected by any tightening of global financial conditions.
A recent blog by World Bank economists reported that emerging markets and developing economies, which account for around 40% of global GDP, were extremely vulnerable due to their high levels of debt. Over the next 12 months, he said, up to a dozen could find themselves unable to repay their debt.
Already the social consequences of this situation can be seen in the rise of class struggles in India, Sri Lanka and North Africa. In the United States, workers are engaged in a series of battles as inflation rises. In the UK, workers are facing what Bank of England Governor Andrew Bailey said was “a historic shock to real incomes”.
Unlike the prevailing scents of the Treasury, Australian capitalism and, therefore, the working class are not insulated or isolated from these processes due to some “exceptional” economic resilience, but are firmly caught in the spirals of these global developments. .
This poses the need for workers to see their struggles, whether over wages, job cuts or attacks on conditions, as part of a growing international rise of the working class. Australian workers must reach out to expand the global struggle against the capitalist system as it inflicts death and disease, due to the refusal to act on COVID, and slides to war and economic crisis.