S jealous of Australia’s weather, sporting prowess and wine will now have to add an Australian economic miracle to their list of gripes. Welcome to the world of Aussienomics. The country’s GDP growth of 4.3 per cent in the last year has come as Australia’s government cut spending by far more than Britain’s has. Round after round of cuts by the Labor government – yes, Labor – have been testament to Julia Gillard’s bloody-minded determination to balance the budget this year.
Australian growth owes much to the resources boom, but that’s not the whole story. Mining soared by 10 per cent on an annualised basis in the first quarter, but professional services rose by 11 per cent. And all-important household spending also rose by over 6 per cent.
This private spending splurge has been driven by Australia’s unrivalled prosperity. The average Australian is, with £141,000 in net assets, richer than any of his international peers and twice as wealthy as the average Pom. Average wealth has quadrupled since 2000. A feat not even matched by China.
This has been the result not just of the mining boom boosting demand for the Aussie, but also strong, stable monetary policy. Although the Reserve Bank has been short-sighted in cutting rates by 0.75 per cent since 1 May, its base rate is still the highest in the developed world, at 3.5 per cent, despite having inflation lower than Britain’s.
It helps that the government doesn’t have a substantial amount of public debt. The opposition Liberals have made a big deal of the doubling of Australia’s debt-to-GDP ratio since Labor took office in 2007, but it still lies at 23 per cent of GDP. A boast that few rival countries can make.
Neither can they on spending. When Britain’s 2020 Tax Commission (chaired by City A.M.’s editor) last month proposed reducing the size of government to 33 per cent of GDP, it was seen as radical – but that’s exactly how much Australia spends.
According to the OECD, the difference between this and Britain’s 45 per cent of GDP accounts for up to 1.3 per cent of extra GDP growth every year. The great shape of Australia’s economy has more to do with small government than with the mining boom.
Liberals are right to say Australia can do even better. The carbon tax’s assault on mining is as mad as bashing bankers in the UK. Vanity projects like the national broadband network have to go. Last year’s budget was the first in nine years – sadly – not to see a cut in income tax.
Nonetheless, Australian Labor has no Ed Balls-style court jester to pull faces and babble nonsense. It’s to Australia’s credit that Labor has accepted some fiscal and monetary restraint. Not because Labor has the answers, but because the debate in Australia – unlike over here – simply makes sense. Instead of a mythical trade-off between austerity and prosperity, both government and opposition recognise they go together. Aussienomics has proven once again that low taxes, low spending, and low debt work.
Oliver Cooper is a freelance journalist.