Political and Economic Roundup for 2016

  • December 16th, 2016 at 12:19 pm

The objective of Political Parties is to be voted into office and to do meaningful things beyond the short term. Australia now needs longer term thinking as no one knows how far off a useful recovery is. Forces beyond our control are creating an unpredictable circumstance in an ‘every country for itself’ economic climate.

The LNP Government faces a hard task, the reality of which became very apparent when they took over the books. It has been argued as to how bad the books really were but what we must remember is Australia is a small country albeit punching above it weight. So whoever is in power will face a struggle to get the books back into ‘order’. Unfortunately it was always apparent there never was a quick route to surplus which wouldn’t hurt the voter; Abbot and Hockey paid dearly for their senseless enthusiasm.

Australia’s capacity to claw back debt is limited even without including the present slowing in revenues. On the world GDP scale we rank about equal 12th and it was inevitable that China, our largest export customer, could not sustain its previous growth rate of 13%+. China put a brave face on it by declaring it was turning inwards to generate a stronger domestic economy! All the rosy estimates about China’s endless growth ignored the fact that many of China’s customers were (are) going broke with the inevitable consequence that their own export markets would narrow sooner or later.

Productivity is the saviour in downturns like this and fiscal cuts and austerity measures only decrease the availability of money and add to the economic burden. When people can’t spend there is a lowering of consumption which leads to decreased revenues, layoffs and rising unemployment. Where it is necessary to lower debt there are only two options – one is to mitigate the debt level (write-offs) which the finance industry resists or do it when the economy can stand some managed austerity. Trying to do it when the chips are already down simply delays a recovery, hurts any gains in the domestic economy and raises the possibility of another recessionary period – at best it will prolong recovery. Productivity generates revenues, increases investment, assists employment, provides freer cash flows and drives an economy upwards.

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Written by
Colin Coverdale
Managing Director of Opportune NFP Limited trading as the Institute of Small Business Owners
and member of the Advisory Board of the Small Business Association of Australia