Table 2 - uploaded by Anthony J. Makin
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Book
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Three different measures of Australia's competitiveness all suggest Australia has a serious competitiveness problem and this is showing up in lower growth. Australia will not durably improve its competitiveness without serious fiscal and structural reform.

Contexts in source publication

Context 1
... capital flows 60 Tables Table 1 Index of trade openness 1 6 Table 2 Australia's top 10 two-way trading partners 2012 1 8 Since the turn of the century, Australia's competitiveness has collapsed, contributing to the economy's rate of growth falling below potential. Over this time, Australia has experienced an unprecedented mining boom which sustained income growth and minimised the macroeconomic impact of the global financial crisis (GFC) in 2008-09, greatly assisted by the flexibility of the exchange rate and strong trade ties to Asia, most notably China. 1 However, the fact that Australia has not fared as badly as many other advanced economies since then has bred complacency in policy circles about the need to address a persistent competitiveness problem. ...
Context 2
... its major trading partners, eight of the top 10 are APEC members on the basis of two-way trade, with the top three -China, Japan and the United States -also the world's three largest economies. The United Kingdom is the only European OECD country which ranks in the top 10 of Australia's trading partners and then accounts for less than 4 per cent of total two-way trade (Table 2). ...

Citations

... Although Australia's public debt to GDP ratio at close to 30 per cent is not high by OECD standards, unlike other advanced economies, the bulk of around two thirds at federal level, is owed to foreign 23 See Makin (2014) for further discussion. 24 ...
Technical Report
Full-text available
Australia has experienced one of the fastest rises in public debt in the world since the Global Financial Crisis. Federal budget deficits have persisted for longer than previous fiscal stimulus episodes in the 1980s and 1990s. Subsequent fiscal repair has also been weaker and less than in the United States, United Kingdom, New Zealand and the Euro area. This paper briefly introduces a range of alternative perspectives on the efficacy of fiscal stimulus as a macroeconomic policy instrument, including the loanable funds, Mundell-Fleming, dependent economy, Ricardian and intergenerational equity approaches. Each of these perspectives suggest fiscal stimulus has damaging offsetting effects that eventually minimise or neutralise its effectiveness in stabilising national income and employment. The paper then examines how effective Australia’s fiscal stimulus response to the GFC actually was in light of the economy’s robust banking system, floating exchange rate, openness to international trade and capital flows, and dependence on mineral exports to Asia. What prevented Australia from experiencing a technical recession at the critical juncture in 2008-09 was a combination of lower interest rates, a major exchange rate depreciation, strong foreign demand for mining exports, especially from China, and a then more flexible labour market. There is no evidence fiscal stimulus benefited the economy over the medium term. Largely implemented after the worst of the GFC had passed, fiscal stimulus countered the effectiveness of monetary policy by keeping market interest rates higher than otherwise and therefore contributed to a strong exchange rate. This worsened Australia’s international competitiveness and damaged industries in the economy’s internationally exposed sector, including manufacturing. Although Australia’s federal public debt to GDP ratio is not high by OECD standards, unlike other advanced economies it is mostly owed to foreign bondholders and has become a significant component of Australia’s total foreign debt, unmatched by domestic asset accumulation. Public debt interest now exceeds budgetary outlays on the Pharmaceutical Benefits Scheme, unemployment benefits, higher education and foreign aid and could reach 1 per cent of GDP by 2020 on present fiscal settings. The servicing cost on foreign debt incurred to fund unproductive budgetary outlays is a net drain on national income and future budgets, and could potentially spark a vicious circle of deficits and debt requiring emergency fiscal remedies if higher world interest rates combine with an interest risk premium arising from a credit rating downgrade. Higher interest rates would also reduce private investment, reducing potential future national income. Reducing foreign public debt would staunch the national income loss arising from unrequited interest paid abroad. The scale of the fiscal consolidation effort required to improve the sustainability of federal public debt is around twice that currently projected. Necessary fiscal consolidation focused on reducing government consumption would exert downward pressure on market interest rates, lessen foreign investment in government bonds, lower the exchange rate, and hence lift international competitiveness. Fiscal repair can also be expected to lift business confidence, boost private investment and strengthen medium term economic growth. For these reasons, reducing public debt should be a top priority of fiscal policy.
... The primary focus is on how effectively inputs are combined in the production process, without explicit regard for international trade dimensions such as the real effective exchange rate, which is central to the measurement of competitiveness. Purchasing power parity (PPP) prices are frequently used as a proxy to reflect the impact of these trade dimensions on the relative competitiveness between countries (Makin, 2014). ...
... The primary focus is on how effectively inputs are combined in the production process, without explicit regard for international trade dimensions such as the real effective exchange rate, which is central to the measurement of competitiveness. Purchasing power parity (PPP) prices are frequently used as a proxy to reflect the impact of these trade dimensions on the relative competitiveness between countries (Makin, 2014). ...