A world in economic crisis

A warning to Australian banks

Posted in Uncategorized by Aussie on June 28, 2011

Australian banks are profitable, which is a credit to the way that they have been doing business. It seems that they are amongst the most profitable in the world. When we were hit by the GFC, Australia was not completely immune but we were in far better shape than Europe and the USA. However, with a Great Recession perhaps just around the corner, things could change.

The ABC report, at least in the first two paragraphs is ok, but then I think it seems to be at odds with the idea of good fiscal management. First the writer criticizes householders for their rate of savings which is about 11.5%. I am not sure why this should be criticized since Savings are a necessary part of liquidity for Investment. In other words, banks use household savings for other purposes, even though the money remains on demand to households, unless of course the money is tied up in term deposits.

However, I do see a weakness in the Australian economy that needs to be addressed, but will not be addressed so long as the building industry continues to hold sway. Here in Australia there is great emphasis on new home starts. At the same time prices for houses on the market continue to rise. The problem is the dominance of one sector of the economy over other sectors such as rural, mining, and industry in general. There is an imbalance and that imbalance could court disaster in the future.

Australia, like the USA has seen a lot of industry shut down, and the work being moved to Asia, especially China, India, Malaysia, Pakistan and Bangladesh. Jobs were lost as soon as wages got too high to be competitive in the marketplace. Instead of being an exporter, Australia has become an importer. Even our yarns are being spun in China and Turkey instead of being spun in Australia. This is not a very healthy situation for Australia.

It is one good reason why Australia needs to start looking inwards and by that I mean we need to start providing for the domestic market at a price that shows efficiency within the industry, rather than worrying about exports. The truth is that those rural subsidies have hurt the economy in the very long run, and it helped to keep the inefficiencies within rural production going, rather than getting farmers to look at their methods and encouraging them to become efficient. However, this is not really about the farmers but about those other sectors where we have seen a decline in production.

Australia should not be relying upon tourism to take up the slack of the unemployed. This is an industry that varies according to the world situation. Tourism should not be seen in the same light as the housing industry. Building schools and shopping centres is also not a viable long term option. We need to get back to the basics when it comes to providing jobs, and we need to find ways of stopping the shift towards the use of offshore call centres etc.  A good starting point is to review payroll tax. Get rid of it, and encourage employers to take on more staff. Payroll taxes cause employers to use staff ceilings, which means that they use temporary workers to take up the slack, but those temporary workers are not able to end up participating fully in the workforce. Get rid of those things that are preventing the hiring of staff, and yes, payroll tax is one of those things. What is lost by way of revenue from payroll taxes is more than made up with an increase in taxes raised as more people are able to join the full-time work-force.

 

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