How the Australian economy is different and notes on our outliers
Came across this clip extract from an economics podcast that talks about how Australia is different to other developed economies.
We are outliers and ‘over-weight’ in mining, financial services and construction, while having prudent and conservative fiscal practices (eg. 'balanced budgets') with an efficient and means-tested social safety net.
The last two can be thought of as economic cultural elements we can point towards. (The efficiency, reliability and capacity within our govt, at all levels, is a stand out as well, and something we probably take for granted).
Mining – endowed with many natural resources, we have a large and 'outsized' proportion of our economy and it’s quite politicised. Said to be unusual for developed economies like Australia and is much more associated with emerging economies. Most developed economies traditionally have had large manufacturing bases. Australia had a degree of manufacturing but has since let it dwindle. Means we now have big exposure to commodity prices which leads to a degree of volatility in our budgets. Need macroeconomic and fiscal management skills to mitigate the risks.
Financial Services - we have effectively privatised the pension system. Superannuation with compulsory contributions made by employers on behalf of their workers, plus SMSF. The funds management industry now exceeds $4T - well above our GDP and the capitalisation of our stock exchange, though still well below the value of our total residential housing stock ($11.5T). Our love for housing also helps keeps the banks balance sheets and ROEs growing. CBA is Australia's largest company by market value approaching $300B (well ahead of BHP at ~$200B). And btw, CBA have ~25% of the country's resi mortgages. See your broker for getting some balance back to the market for your home loan!
Construction – we are a high immigration and population growth country - 1.6%-1.8% pop growth is unusual in developed world vs. OECD average of 0.5%. Encouraged by governments, we need more housing and infrastructure to support this fast pace of population growth. Therefore, construction has a larger share of our overall economy.
Super and Housing are significant assets that characterise household balance sheets, and if not unique to Australia, certainly distinct.
Fiscal prudence - govts should balance the budget, debt should be low. Fragmenting recently but these are the expectations of good govt and is a key litmus test. Not a feature of other developed economies and not discussed in the G7 countries to anywhere near the levels it is here. Can be a hot topic of conversation around the bbq here.
Social safety nets - higher minimum wages by global standards, with favourable labour laws. Strong precedents on skewing social assistance to 'low income' households as this is seen to be fair. 'Free' / subsidised healthcare is a feature of our social contract.
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