Bickering hides our resource failure – by Ian Verrender (Australian Broadcasting Corporation – February 17, 2014)

http://www.abc.net.au/news/thedrum/

Both sides of politics have played a direct role in the demise of Australian industry and have wasted the proceeds of the resources boom, writes Ian Verrender.

What a spectacle: The self-righteous fury and finger pointing on both sides of the political spectrum that has greeted the long, slow and ultimately unavoidable death of the domestic auto industry.

Who is to blame? Who cares? The simple fact is that the hollowing out of the Australian economy is gathering pace while our bickering leaders thrash about with no plan on how to arrest the decline of manufacturing and precious little understanding of why it has occurred.

Of even more concern, neither side will acknowledge the direct role they have played in the demise of Australian industry. Nor will they admit to squandering the proceeds of the resources boom, cynically opting to enhance their electoral prospects by delivering instant gratification to taxpayers rather than formulate any long-term plan to enrich the nation.

Economists often refer to the forces wreaking havoc across our economy as Dutch Disease, a term coined by The Economist newspaper back in the late 1970s when North Sea oil discoveries radically transformed the Netherlands economy, squeezing out manufacturing.

In fact, an Australian economist, former Reserve Bank board member and Australian National University academic, Bob Gregory, pioneered the theory years earlier in a seminal work that became known as the Gregory Thesis.

It is no longer a theory as thousands of Australians are discovering to their horror. Our manufacturing industries now contribute just 7 per cent to our economic output, the lowest in the developed world, and falling. In 2004, it stood at 12.5 per cent.

How did we get to this, and how could it have been avoided? It is certainly true the strength of the Australian dollar has been the blunt weapon that has laid waste to vast swathes of Australian industry, rendering it uncompetitive.

But government policy failures throughout the first decade of the new millennium have been a major contributing factor.

Rather than quarantine the windfall gains generated during the early years of the resources boom, the Howard government, swamped by a huge and unexpected lift in company tax, instead chose to lower personal tax rates. The Kevin 07 juggernaut not only endorsed the policy, it went one further.

Returning that cash to taxpayers boosted consumption, fuelled a borrowing binge, lifted inflation and elevated interest rates, making Australia a very expensive country in which to do business.

For the rest of this article, click here: http://www.abc.net.au/news/2014-02-17/verrender—auto-industry/5261200

 

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