I just completed reading a fascinating economic and political history of Australia since the 1970's. "The Australian Moment" by George Megalogenis details how we were a basket case economy in the 1970's to the resilient, flexible economy today that has withstood the recessions that have plagued the world and become the economic model for advanced economies.
Our ability to withstand these external shocks to our economy can be linked to a number of important economic reforms.
The major economic reforms were:
- The reduction and removal of the tariff system (Whitlam, Hawke) which made businesses compete on a global level.
- The floating of the Australian dollar (Hawke) in 1983. The economic shock absorber provides stimulus via greater export prices in tough times.
- The Prices and Income Accord (Hawke) which helped break the back of stagflation (high inflation and high unemployment). It has lead to a sharp reduction in the strikes that plagued the economy at the time.
- Superannuation (Keating)- The Superannuation Guarantee increased our level of savings. The $1.3 trillion in super provided our businesses, governments and banks with much needed capital during the GFC.
- GST - (Howard)The broad Goods and Services Tax replaced a number of very narrow taxes like sales tax which has focused on manufacturing.
- Government Budget Surpluses (Howard) - Whilst surpluses where occassional, the Howard government made the principle almost mandatory for future governments.
There were also a number of other events and reforms:
- Increased migration from Vietnam and China (Fraser and Hawke) which both added people to the employment stock and widened our outlook on the world.
- Transfer of monetary policy from the Government to the Reserve Bank.
- The deregulation of the financial sector and the realisation following the excesses of the late 1980's that the sector needed regulating.
- Treasury and the Reserve Bank learning from the mistakes of the tough early 1990's recession (the recession we had to have).
In the decade of the 1970's, inflation averaged 10.2% and went as high as 17.6% (March 1975). During the 1980's, inflation averaged 8.2% with a high of 12.5% (September 1982).
In the 1990's inflation fell to and average 2.5% and in the 2000's inflation averaged 3.1%.
People have forgotten that also during this high period of inflation, unemployment was also high at between 7% and 10%. Today, unemployment sits around 5% which is around full employment.