By: Dr. Mike Campbell
It seems that politicians have finally accepted the concept that a nation should “live within its means”. This doesn’t mean that government debt or borrowing on the open markets will become a thing of the past, but it does look as if politicians of every persuasion agree that debt must be managed responsibly – a thing that just about every family in the Western world could have told them in the first place.
Australia was the only leading economy not to go into formal recession during the global financial crisis and it was swift to return to growth, buoyed by the mining sector and foreign demand for its natural resources. Despite catastrophic flooding in Western Australia and the knock-on effects of natural disasters in New Zealand and Japan, the Australian government has announced ambitious plans to trim 22 billion AUD from government spending. The aim is to return the country to a budget surplus by 2012-2013 and this will be achieved through reductions in the welfare budget and reducing tax breaks over the next five years.
Estimates suggest that the Australian floods and cyclones may chip as much as 0.5% from the GDP figure, but it is still anticipated that the country will grow by 4% this year. The reduction in governmental expenditure may also serve to curb inflation in the Australian economy, thereby avoiding the need for a further interest rate hike. Australia was the first country to increase bank interest rates following the global financial crisis and they currently stand at 4.75%. with inflation standing at 3.3%. The strength of the Australian economy, interest on offer and perceived safe-haven nature of the currency has pushed the Australian Dollar higher by 7.1% against the Euro over the course of the last year.