repreinted from the WSWS By Mike Head 16 April 2012
Despite gathering signs of downturn and social distress throughout much of the Australian economy, Prime Minister Julia Gillard last week emphasised her Labor government’s commitment to deliver a 2012-13 budget surplus in order to satisfy the global financial markets.
To meet that pledge in the budget to be delivered on May 8, the government must slash spending by a greater amount than any previous post-war Australian government. It must reverse an expected 2011-12 deficit of $40 billion or more. Cuts of that magnitude will exceed the total of $35 billion in austerity measures just announced in Spain, which has a comparably-sized economy.
Sections of business, as well as charity organisations, have urged the government to soften its stance because of the recessionary impact that the budget cuts will have on jobs, household spending and economic output. Such an unprecedented fiscal contraction will deepen the slump in non-mining related industries, particularly manufacturing, property development and tourism.
Reflecting those concerns, Australian Broadcasting Corporation radio host Fran Kelly asked Gillard the following question last Tuesday: “[N]o Australian government has ever attempted such a huge withdrawal of spending in just one year, and that’s been described by some as seriously reckless. It could cost thousands of jobs and push the economy into recession. What do you say to those people who are worried about that kind of withdrawal?”
Gillard said the government had no choice but to honour its promise to the financial markets, citing the “uncertain economic times globally.” She insisted: “With us wanting to lock in confidence and send a signal to the world, the right economic zone to be in is with a budget surplus.” The prime minister reiterated that her government was “driven” by this “economic imperative,” even though it would entail “very tough choices.”
Attempting to answer the concerns expressed by some business leaders, Gillard also claimed that a budget surplus was necessary to give the Australian Reserve Bank room to cut domestic interest rates. Any rate cuts, however, will be insufficient to offset the deep budgetary hit to the economy, particularly if, as expected, the major banks fail to fully pass on rate reductions.
As ANZ’s decision last Friday to lift its mortgage and business rates by 0.06 percent demonstrated, the banks are increasingly hiking up their lending rates regardless of the central bank, because their European and global borrowing costs are once again escalating.
In the same interview, the prime minister contradictorily argued that there was no reason to fear that there would be a downturn, because Australia’s economic fundamentals remained “strong,” with a $400 billion “pipeline” of investment planned in the resources sector.
Her remarks only highlighted the exposure of Australian capitalism to the slowdown taking place in China, its largest customer for mining and energy resources. The Bureau of Statistics reported last week that Australian earnings from mineral exports slumped 17.5 percent in six months, from $17.3 billion in August to $14.3 billion in February. The Reserve Bank’s commodity price index also peaked in August and was down almost 10 percent in March.
This week, the International Monetary Fund forecast a further fall in commodity prices during 2012-13, with a “downside risk” that slower global growth could force even greater price “adjustments”. The IMF commented that long-term prices were “even more unpredictable.” This warning effectively undercut all the Labor government’s economic and budgetary predictions, which are predicated on commodity prices remaining at near-record levels for the foreseeable future.
Australia’s dependence on China has heightened concern in financial markets about another economic vulnerability—the reliance of the Australian banks on overseas sources for more than 40 percent of their borrowings, a weakness that forced the Labor government to guarantee their funding in 2008-09. Earlier this month, two credit ratings agencies, Standard & Poor’s and Fitch Ratings, pointed to renewed bank liquidity concerns and declared that a tough budget was essential to protect Australia’s AAA credit rating.
Australian property prices, which have already fallen about 5 percent on average in the past year, are also exposed to China’s slowdown, presenting a further risk to the banks.
Standard & Poor’s this week warned that the Chinese regime’s decision to lower its growth rate to 7.5 percent this year could reduce Australian property prices by another 5 percent. If, however, Beijing failed in its bid to deliver a “soft landing” for China’s economy, a worse crash could follow. According to the S&P report, if China’s growth slowed to 5 percent, Australia would be sent into a recession and house prices could fall by as much as 20 percent.
Australian property prices are so sensitive to China’s difficulties for several reasons. One is the underlying upward effect of the mining boom on real estate values. Another is that foreign investors accounted for one-third of Australian property transactions in the first nine months of 2011, according to property firm CB Richard Ellis. These investors included many seeking to escape the collapse of China’s own property bubbles.
Official unemployment statistics released last Thursday provided some indication of the devastating job losses taking place in non-mining sectors, especially manufacturing, as well as the increasingly dislocated character of the economy.
While the national jobless figure for March remained at 5.2 percent—up from 4.9 percent over the past year—the situation was much worse in the industrial state of Victoria. There the number has jumped from 4.4 to 5.8 percent over the past year, representing a net loss of more than 50,000 full-time jobs. By contrast, the more mining-dependent state of Western Australia edged down from 4.3 to 4.1 percent.
Some measure of the heavy impact on working people produced by the job losses over the past year is also showing up. Surveys point to consumer confidence dropping to the lowest level since the early months of the global financial crisis in 2008, rising numbers of personal bankruptcies, especially in the outer suburbs of Melbourne and Sydney, and falling applications for loans to buy homes.
In order to achieve its budget target, the Labor government will have to gut entire areas of social spending, which will intensify the hardship being experienced by wide layers of workers and young people. In an early warning of what is to come in the May 8 budget, the Department of Human Services last week unveiled 470 job cuts, driven by the cost-cutting imposed in last year’s budget.
These cuts will mostly affect people, including the unemployed, welfare recipients and retirees, who depend on government service delivery and benefit payment agencies such as Centrelink and Medicare. Even before these cuts, the department’s workforce had been reduced by more than 10 percent—from 42,000 to 36,600—over the past year.
Prime Minister Gillard’s vow to make “very tough choices” in this year’s budget is a warning that this offensive on jobs, social services and working-class living standards is to be accelerated. The Labor government is determined to impose sweeping austerity measures, in order to assure the financial markets that it has begun the task of matching those being inflicted on the populations of Greece, Spain and other European countries.
Comments
Re: Amid signs of slump, Australian PM reiterates “tough” ...
All those vulnerable people affected by this "Tough Economic stand" will rise and it's election year next year.
What is she doing but proving what is already known.
She hasn't thought and definitely not about cutting where there is a lot of revenue, she chooses to penalise the most vulnerable and the whole world is watching this with disdain.
Australia does not have to cut services for those most in need and never has too. This is shameful
James
Re: Amid signs of slump, Australian PM reiterates “tough” ...
I'm a barrister working in human rights and friend of someone who is going through some tough times.
Not needing as with millions of others, this outpour of fearmongering and taking from the poor by stealth.
Mercenary actions the P.M. is proposing.
If she's not careful the law will step in to help a lot of these 'vulnerable ones" as the charities are on overload and Australia is a collectively rich nation able to afford at the very least a real national social security safety net.
There's human rights the PM can't see or has been advised not to see. She will suffer the loss of reputation and her job for this if she continues to pursue hurting those already suffering the most.
We are all interconnected and the PM can't acknowledge this except in economic terms that will be her downfall unless she finally sees the error of her mercenary ways.
Intolerable to hurt and damage the disadvanted in collectively rich Australia.
Barrister NSW Australia
Re: There are only slumps with the people or the margins” ...
I reiterate something I spoke about at a recent comference.
If Australia is to sirvive and thrive as a nation the health of the people, all of the people is the major priority. usually the elderly know this best, in their wisdom though I'm not one of them.
The Prime Minister and her advisors wanting to cut Medicare is a national disgrace that would profoundly undermine the health of indviduals and collectively all who work, want to work and have every right to healthily go about doing their work with basics such as Health resources, decent living housing, healthy lfestyles, food, clothing and hope in brighter prospects for Australia.
Without basically healthy people the country of Australia is an unhealthy nation, this goes without saying.
Cutting Medicare back is no solution to the problems the Prime Minister and her advisors are looking at.
It would destroy a country that has already enough poverty and disadvantage to it's shame due to certain people with plenty taking advantage of the precarious lifestyles of those with so little.
I and my legal associates also think the Prime Minister has said she'll withdraw our troops from Afghanistan as a ploy to win back a lot of votes she's lost.
Australians as a fair lot of people are not tolerant of wars that are not as the PM states winnable and are not tolerant of having their health jeopardised by "tough cuts" where they should never happen.
Would be PM and her advsiors tokerate "tough cuts" to their jobs, health, pensions (they are secure and very large) and livlihood, I think not, then why is she and her adviors wanting to do to her fellow citizens and the military as other kind of citizens what she wouldn't want done to herself and her advisors. This is a real question she and her advisors need to conscionably consider.
Elections happen and they reflect immensely on what the people of Australia think.
Howard was ousted for similar mean spirited proposals and actions. That can all happen again.
Do we really want unhealthy Australians who can't afford to eat properly because of their big electricity bills, their health suffering because of their inadequate medicare coverage, poor diets due to lack of nurtrition that is part of fair health, adequate and human housing and food supplies cut back on further and thereby inability to work in the paid workforce as reliable employees?
And, all the rest that goes with the kind of heartless and lacking foresight ideas that are as written in "Amid signs of a slump, Australia ....." from Reuters and Indy news here.
Australians all deserve a fair go and "tough" is too small a word for what this news media is talking about.
It also doesn't work, it's too shortsighted.
Thanks Indy and Reuters and in Hope.
G. N.
Re: Amid signs of slump, Australian PM reiterates “tough” ...
I second every remark made here by the writer and comments.
The PM is not doing her political duty, and can;t see beyond immediate gratification.
My wife and I are fairly affluent and on a daily basdis see people we know losing their jobs and losing their livlihoods that once were and being degraded by policies the PM and past PM's have put in place.
We also see poverty and abject poverty everywhere even in our affluent suburbs.
There has to be something less mercenary than this PM's "Tough Budget".
She and her political advisers know there's funds for all.
Steve (Political science)
Melbourne Australia
Re: Amid signs of slump, Australian PM reiterates “tough” ...
Good article thanks for sharing
Re: Amid signs of slump, Australian PM reiterates “tough” ...
I third this.
I'm seeing everywhere in Australia, and I travel a lot for work, the great divide between those who have so little and live on benefits (social security that is hardly secure because of it's lack of funds) and those who are the greedy ever acquisitive rich.
It's not Australian.
There has to be some changes and no budget cuts from the bottom tiers of our country thanks PM.
You wont last long with the outrage that comes of doing things like that.
A man with a conscience
Marrickville
NSW
Re: Amid signs of slump, Australian PM reiterates “tough” ...
Now hate's the difference between Labor and Liberals as we see the Liberals want to slash everything.
All these pollies with vested interests in high end of town.
Shame Shame Shame
They are only damaging themselves.
Roger
Re: Amid signs of slump, Australian PM reiterates “tough” ...
I agree with all the comments the PM is shameful and the wuestion to ask her is:
Don;t you nknow how to feel shame?
Or
Don't you feel shame?
She's acting like Macklin like a dictator to the less advantaged and seems to have forgotten how fair the voters are even when there's all the media rigging, they know and they like fairness and caring for people falling on unfortnuate rimes.
It's "tough times' for you possib;y PM and no need to project that onto your fellow citizens.
You're heading in the same directions as all of us.
You're only considered a real leader of you do the right things, and by Australians who need all the very basics as per UN Declaration and the Conventions of which Australia is a party too.
There's on;y a slump in your head PM.
We're rich in minerals and respirces, just that top end are not sharing these. Pave the ay so that happens and you're showing real leadership.
Don't dare penalise the less fortunate or you're on a larger slump than you could evert imagine in your darkest nightmare Miss Gillard and advisors.
Ali
Re: Amid signs of slump, Australian PM reiterates “tough” ...
The PM is out with the most outrageous Australian citizens booting her that way of she cuts basics such as social welfare and medicare, basics in Australia.
She is already skating on thin ice, and to say this she's gone over the edge,
I think her advisors need to understand something they don't.
There is a large number of young people who disapprove of the lack of empathy in the present and past Australian governments, and they're coming up with ideas and views that are progressive and also egalitarian, as Australia is meant to be.
Miss Gillard is in for a slump, not the nation, it's altogether a rich country and there's enough for all to have a slice of the whole pie Miss Gillard and advisors.
Stop the Corruption, stop the abuse and stop the chaos and do your jobs serving the people of Australia, not neck treading them and doing a Barry O'Farrell "saying" I"ll smash them or "We can smash the peopl" that's total madeness, as is any 'Tough budget cuts".
Take that bullshit to the top end of town Miss Gillard you're losing it, [or are you too scared (you're a coward) to front the people who pull your strings] and it all began at your beginning when you stabbed a man in the back to get to be PM.
What goes round comes round, and your words are empty and hollow and slumped over a vacant seat soon, as we're all informed by higher sources.
Paul