Five reasons to be cheerful about the Australian economy

This opinion article by Business Council chief economist Adam Boyton was published in the Financial Review on Thursday 24 January 2019.

Economics is sometimes known as the dismal science. Which is a shame, because at its heart economics is ultimately about the pursuit of happiness.

It's also a shame because it seems that a dismal attitude sometimes afflicts economists themselves.

 

Growth isn't fast enough. Debt is too high. Wages growth is too low. Productivity growth is too weak. This economist has been guilty of such over the years. Of course, those things are true. But what are the positives across our economy? What are we are doing well? What are five things about our economy that we should be celebrating?

 

First, we are creating jobs. Lots of them. While we don't yet have the employment data for December 2018, over the year to November the economy created 286,000 new jobs. And most of those jobs were full-time. In fact for all the talk about the increasing casualisation of work, the data simply don't bear that out, with the proportion of casual workers having remained around the same levels since the mid-1990s. Additionally, the unemployment rate is hovering around the Reserve Bank's estimate of full employment. Yes, there are aspects of our labour market that can always be better. But the story on jobs is a bright spot.

 

Second, Australia is on the cusp of a budget surplus. Admittedly it's taken a while. Still there are a number of reasons why this is an important positive for Australia. It provides the economy with more resilience in the face of a negative economic shock. Getting back into surplus also gives us a much stronger position to deal with the challenges of an ageing population. The sustainability underscored by a budget in surplus also means Australia can afford the public services we all want, including a comprehensive social safety net. Put simply, getting to and staying in surplus means that we are able to fund the promises we are making to ourselves.

 

Underpinning those first two achievements has been a remarkable growth performance. This is the third thing we have managed to get right. Twenty‑seven years without a recession. That means the majority of Australians in the workforce have never seen the unemployment rate jump to 11 per cent in the blink of an eye. Of course growth can't be guaranteed - especially in a small country subject to the fortunes of the global economy. Growth needs to be earned through good policy; and also defended from time to time. In this regard a strong fiscal position and strong growth go together. That is, strong growth helps to create a strong fiscal position - assuming, of course, the proceeds of growth aren't squandered. That strong fiscal position can then support growth through downturns. Strength begets strength. And, of course, weakness begets weakness.

 

Consistent growth segues into the fourth thing we have managed to get right - an ability to deal with change. Australia has managed the Asian crisis, the tech boom and bust of the early 2000s, the commodity price and mining investment booms and navigated through the global financial crisis. There are lots of reasons behind our ability to deal with these events - but flexibility must rank near the top. A floating exchange rate - which had the Australian dollar collapse during the Asian crisis and soar during the post-GFC mining boom - has been part of that flexibility. Another part of that flexibility has been the deregulation of the Australian economy since the early 1980s, including deregulation of the labour market and the introduction of enterprise bargaining. A rigid and inflexible economy, and a rigid and inflexible labour market, would have seen very different outcomes.

 

The fifth area where Australia has done well is in ensuring the benefits of growth have been distributed to all. The Productivity Commission recently found that Australia's long stretch of growth "has delivered for the average Australian household in every income decile significantly improved living standards". That is, the benefits of growth have been shared by all income groups.

Of course, no economy is perfect. There are areas where we can and should do better.

 

But given such broad successes over such a long period, it's remarkable that some want to turn their backs on the reforms of the 1980s, 1990s and early 2000s. Reforms that unshackled the Australian economy, Australian businesses and supported private enterprise. It's those reforms that are at the heart of our economic successes.

 

Indeed, it's enough to make you wonder if one of our greater economic shortcomings has been an inability to explain Australia's economic positives and just how they came about.