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FactCheck: how strong is Australia’s economy?

“We have among the lowest of budget deficits and debt to GDP of any other major economies in the developed world… If it’s so bad, Mr Abbott, why have we been given by the three ratings agencies a AAA credit…

How does Australia’s economy stack up when compared globally? AAP Image/Lukas Coch

“We have among the lowest of budget deficits and debt to GDP of any other major economies in the developed world… If it’s so bad, Mr Abbott, why have we been given by the three ratings agencies a AAA credit rating?“ - Prime Minister Kevin Rudd, ABC’s AM program, 5 August.

The Prime Minister has said many times that Australia has a low budget deficit and debt to GDP compared with other major economies, and pointed to Australia’s AAA rating as evidence of a strong economy. But how accurate are those claims?

As Rudd explicitly compares Australia to other major economies, it is necessary to use a multinational database that guarantees cross-country comparability and consistency of statistical information. For this reason, the International Monetary Fund (IMF) World Economic Outlook Database from April this year is chosen as the primary data source.

How much debt does Australia have?

Net debt to gross domestic product (GDP) ratio is a way of counting how much national debt a country has when compared with the total value of the economy, as measured by GDP. It is used as one indicator of the economic sustainability of a country’s debt.

Chart 1 shows the latest IMF data on how net debt to GDP has changed since 1995, with Australia’s performance charted in comparison to other economies including the Group of 7 nations, the European Union, the Euro Area nations (which only includes the countries that have the Euro as a currency), and a grouping of more than 30 “advanced economies”, including Canada, Germany, Hong Kong, Israel, New Zealand, the United Kingdom and the United States.

From 2013, the figures shown in Chart 1 are estimates. These are the best and most current comparable figures on net debt available - although as I will discuss shortly, it is important to consider the IMF forecasts in the light of the recently revised Australian Treasury forecasts.

Chart 1: Net Debt to GDP ratio in Australia and comparison country groupings Source: IMF, World Economic Outlook Database

In 2012, Australia’s net debt to GDP ratio was 11.6% (that is, our net debt was equivalent to 11.6% of our GDP) and it is expected to increase to 12.7% in 2013. This is very close to the figure (13%) mentioned by the Prime Minister in his interview.

As Chart 1 also shows, the Australian net debt to GDP ratio is low by international standards. The average for the Euro Area in 2012 was 71.9%, lower than the figure reported by the Prime Minister (90%), but still more than six times higher than the debt level in Australia.

Out of 26 advanced major economies for which net debt data are available in 2012, Australia had the sixth lowest net debt to GDP ratio (including countries that reported a negative net debt).

Chart 1 also indicates a worldwide increase in debt ratios since 2008. This increase was largely due to the expansionary fiscal policies (a combination of tax cuts and higher public expenditure) that many countries adopted in response to the Global Financial Crisis.

According to the IMF estimates, Australia is expected to be able to arrest that increasing debt after this year and to reduce the ratio by 7 points of GDP by 2018. This projected decline is larger than the average projected decline in the comparison countries.

However, the consolidation of Australian budgetary position may be slower than initially expected in view of the Labor’s government weaker-than-expected economic statement last week, which showed higher deficits and higher unemployment than forecast in the May budget. (You can read the official economic statement here.)

Explaining the decision to cut interest rates last week, Reserve Bank Governor Glenn Stevens also observed: “In Australia, the economy has been growing a bit below trend over the past year. This is expected to continue in the near term as the economy adjusts to lower levels of mining investment. The unemployment rate has edged higher.”

However, Stevens did put Australia’s position into a global perspective, noting that: “Recent information is consistent with global growth running a bit below average this year, with reasonable prospects of a pick-up next year”.

How do Australia’s public finances look?

Table 1 provides some details on public finances in Australia and Europe over the period 2008-2012, as well as some indication of expected future trends (the figures from 2013 on are estimates).

Table 1: Fiscal position of Australia compared to Euro Area and European Union averages. Budget balance means revenue minus expenditure. Primary balance means budget balance plus interest on debt. All figures are % of GDP. Source: IMF, World Economic Outlook. Estimates start after 2012.

A combination of a decrease in revenue and an increase in expenditure pushed Australia’s budget balance to a record of -4.7% of GDP in 2010. (The budget balance is equal to revenue minus expenditure, therefore a figure of -4.7% means that the deficit amounted to 4.7% of GDP.) However, the peak of deficit in Europe was significantly higher.

In 2012, Australia’s budget balance was -2.95% of GDP, compared to -3.59% in the Euro Area, -4.14% in the European Union, and -5.91% in the advanced major economies (not shown in Table 1).

Out of 34 advanced major economies for which fiscal balance data are available in 2012, Australia had the 13th lowest deficit (including countries that reported a surplus).

What’s a AAA credit rating worth?

Credit ratings are designed to help investors judge governments and businesses' ability to meet their financial commitments - and AAA is the top rating available.

In this AM interview, as well as at his election campaign launch, the Prime Minister asked a rhetorical question about why Australia would have been given a AAA credit rating by the major credit agencies if the economy was not strong.

In fact, there is some debate among economists about the reliability of credit ratings. In the aftermath of the Global Financial Crisis, rating agencies were criticised for their inability to correctly see through the junk financial products that eventually led to the collapse of several financial institutions.

More recently, some observers have argued that the credit rating agencies were slow to downgrade the world’s largest economy, the US, despite the US Federal Reserve spending trillions on bailouts during the GFC. Others argue that their assessment of some European economies' rating has been at times inconsistent and not always linked to the underlying economic fundamentals.

Opposition finance spokesman Andrew Robb echoed some of that criticism recently when he said on ABC News Radio:

“I remind you that Lehman Brothers, the collapse of Lehman Brothers, which started this global financial crisis, on that very day, they still had a AAA credit rating… You can’t place enormous store in the rating agencies. They do get things very badly wrong".

It might therefore be argued that having a AAA rating does not necessarily say everything about the economic conditions of a country.

Still, not many countries can currently claim to have a AAA rating - and all of those that do appear to be in strong economic and financial conditions.

Perhaps a better way to assess the strength of Australian economy is to look directly at the dynamics of macroeconomic indicators. For this purpose, Table 2 summarises current and future expected levels of some key economic indicators for Australia and other countries with a AAA rating.

Unlike Australia, the US and UK have been downgraded from AAA to AA+ by some ratings agencies, but they are included in this table for comparison, together with the averages of the group of major advanced economies.

Again, a note of caution is in order here since projections are continuously updated.

Table 2: Key economic indicators in Australia and other AAA countries. Units shown: ‘Growth’ is % change in real GDP; ‘Inflation’ is % change in consumer price index; ‘Unemployment rate’ is % of labour force; ‘Current account’ is % of GDP. Source: Author’s calculations based on data from the IMF, World Economic Outlook Database

With an average annual growth rate of GDP projected around 3% over the next five years, Australia is among the fastest growing economies of the group. This is true even when looking at the revised GDP growth figure announced by the Treasury (2.5% growth in 2013-14 and 3% from 2014-15 onwards)

Unemployment is lower in Australia than in most other AAA countries - and would continue to be even if it rises as forecast to 6.25% next year. Conversely, inflation is higher than in the other countries in the sample, including the UK and US, but still below 3%.

Australia’s current account balance is expected to deteriorate. This might reflect a number of factors: growing investment in the resource sector, increasing mining-related imports, and progressive normalisation of terms of trade and interest rates on external borrowing.

Verdict

The data indicates that the Prime Minister’s statement about the debt position of Australia is correct. The economy is doing relatively well by international standards. The new information recently released by the Treasury depicts a somewhat softer short-term outlook, but it does not substantially change the overall positive assessment of Australian economic performance in the global context.


Review

This article is a fair and reasonable examination of the evidence. I think it provides a cogent assessment of the Prime Minister’s claim. - Graham White.

The Conversation is fact checking political statements in the lead-up to this year’s federal election. Statements are checked by an academic with expertise in the area. A second academic expert reviews an anonymous copy of the article.

Request a check at checkit@theconversation.edu.au. Please include the statement you would like us to check, the date it was made, and a link if possible.

Join the conversation

96 Comments sorted by

Comments on this article are now closed.

  1. ian cheong

    logged in via email @acm.org

    Evidence on the ground in Queesland is that a lot of business premises are empty, a lot of tradesmen are hanging out for work, the economy is probably the worst it's been for decades. Small business tradies won't show up in unemployment statistics. Companies paying workers for doing not much don't show up in unemployment statistics. Cost of living is an issue and retail sales are still flat.

    The statistics may also not look so bad because the mining boom tempers the numbers for the rest of the economy. But the anecdotal evidence will show up in the official statistics eventually......

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    1. Thomas Liszt

      Systems analyst

      In reply to ian cheong

      "The data indicates that the Prime Minister’s statement about the debt position of Australia is correct".
      This can't possibly be true. Tony Abbott and his media backers have told everyone time and again that the economy is in in a severe "crisis". Debt and deficit is out of control because of this "bad" governments mismanagement A horribly gloomy outlook.indeed. But PM Tony is going to fix it and stop the boats as well, no worries.

      As Ian Cheong says: "Anecdotal evidence will show up eventually" and the truth shall be revealed and set us free!

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    2. Ross James

      Engineer

      In reply to Thomas Liszt

      Australia has been in a unique global position to enjoy the resources boom from China. The concern is that, if this reduces, the rest of our economy is struggling. Despite the resources boom, the Government sent us into debt (largely due to waste and mis-management of projects).

      We have low interest rates because the Reserve Bank recognises this risk, and wants needs to keep the overall economy moving. Abbott is correct in making us aware of this. Manufacturing industry has been forced to shut down or move overseas (tax, wage conditions, slow economy). The insulation scheme permanently damaged the industry here (local manufacturers forced out of business, and cheap imports from China). We need to recognise the direction this government has set, and change it before we get into real trouble.

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    3. Thomas Liszt

      Systems analyst

      In reply to Ross James

      Do you have confidence that the conservatives have the answers?
      Going by their past track record I have serious doubts.

      I am deeply concerned about the extraordinary media manipulation campaign on behalf of their chosen party. I wonder what they have to gain!
      I prefer to read widely online to get a better grip on things. Checked out IA lately?
      http://www.independentaustralia.net/2013/politics/new-tony-the-hollow-man/
      What do you think?

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    4. Ross James

      Engineer

      In reply to Thomas Liszt

      Thomas - thanks for the link to this. It's interesting. Politicians have to balance their own convictions, and the desires of those who elect them. A political party with good policy is useless unless it can get elected. Therefore, unfortunately, they all have to play the election game. The Gillard government went to extremes - promised what the electorate wanted, then blatantly (in the words of Garrett) changed it after the election, and hoped we wouldn't notice or care.

      In the same way, party…

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    5. Mike Stasse

      retired energy consultant

      In reply to ian cheong

      I know for a fact that some small businesses have closed down because......... they've gone mining!

      Retail sales are flat because Australia's biggest debt concern is PRIVATE DEBT..... people with big mortgages and high credit card balances are paying off their debts rather than buying 'stuff' from retailers. Stuff they almost certainly don't need. What do you buy when you already own 'everything'??

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    6. Ross James

      Engineer

      In reply to Terry Reynolds

      The insulation industry was my industry. What really happened is they started the insulation incentive. We warned Garrett and Rudd that it had to be properly managed - that new companies would suddenly appear with sub standard product, and no training. The result would possible lead to house fires, electrocution, and deaths. Rudd ignored the warnings, and pushed ahead. Australian manufacturers couldn't meet the demand, so product was brought in from China and Europe (I helped set up the deals in…

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    7. Ben Gardner

      Student

      In reply to Ross James

      You do know this thing called a Global Financial Crisis happened right? Thats what sent us into deficit.
      Manufacturing is shutting down because A) other countries are subsidizing/deflating their currency and B) Australian Dollar is high because everyone elses economy's are in the shitter. The Insulation scheme even if they set fire to half the businesses they installed in would hardly make a dent to the nation, back this up.

      The direction the government has sent us in is appropriate for our times. They are not doing a perfect job, the mining tax was fucked up and could have brought in much more money etc. But they are a hell of a lot better then the Coalitions plans to Slash and Burn which is proven in Europe to be a horrible idea, drop your spending and your revenue drops, then you get massive unemployment with little productivity. Spending to get us out of this time of stagnation is the economically appropriate thing to do.

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    8. Ben Gardner

      Student

      In reply to Ross James

      Please do give me the figures on how many companies were forced out of business because of this, at a national level it would be miniscule.

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    9. Ross James

      Engineer

      In reply to Ben Gardner

      So our debt has nothing to do with cash handouts that went to pay for goods made in China? Millions spent on insulation rectification? Millions wasted on trying to set up alternative illegal immigrant locations that failed? Millions on handling the huge increase in boat people? Wasted money on the mis-management of the overpriced BER? Even money to take 114 people to Copenhagen including Rudd's hairdresser would have been better in the coffers. Gillard committed $320 million to promote women in politics in the Pacific region - money that we didn't have.

      Don't just blame the GFC, and we don't need to be this far in debt.

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    10. Ross James

      Engineer

      In reply to Ben Gardner

      Just for interest, 445 companies shut down owing the government (us) $14 million dollars after wrongly claiming subsidies - this money was written off.

      I don't know how many good companies were forced out of business - I just know of some myself. 40 companies filed compensation claims to try to survive.

      You're right - not big at a national level - tell that to people that spent years developing a business, only to lose it all. The problem is, it could all have been avoided if Rudd had just taken some advice.

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    11. N Wilson

      Biologist

      In reply to Ross James

      If Howard and his Defence Ministers had taken some advice on Sea Sprite helicopters, we mightn't have spent $1.2 billion and ended up with no helicopters. And they didn't have the frenzy of finding stimulus programs to keep tradies in work as an excuse.

      I would have given the helicopter advice for only $1 million up front. As in: "it is madness to buy secondhand helicopters, some 30 years old, that no-one else wants for free and try to make them modern fighting machines. Buy some new ones."

      $1.2 billion saved (this doesn't include the $110 million plus more they wanted to throw into the black hole.)

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    12. Daniel Boon

      logged in via LinkedIn

      In reply to Ben Gardner

      I hope that Readers understand that the GFC is the effect brought about by bringing forward energy that is not a) available, energy stocks are decreasing and c) that oil above (about) $110 prices makes embodied energy products (that's everything) unaffordable ..

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    13. Mike Stasse

      retired energy consultant

      In reply to Ross James

      Don't just blame the GFC, and we don't need to be this far in debt.

      Remind me "how far in debt" we are again.... Isn't it the equivalent of someone on $100,000 a year having a $20,000 mortgage..?

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    14. Robert Tony Brklje
      Robert Tony Brklje is a Friend of The Conversation.

      retired

      In reply to ian cheong

      Construction industry boom and bust are subject to their own peculiarities of developers greed. A boom in construction relates to developers gaining easy access to loan capital and initiating construction well beyond the capacity of population growth to absorb, especially when the greed of developers drives up prices, beyond the capacity of most of the market to pay and hence the exclude their own customers from purchasing the properties they are trying to sell.
      Which leads to bust, no work, few…

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    15. Daniel Boon

      logged in via LinkedIn

      In reply to Robert Tony Brklje

      Just an observation ..... land developers are not automatically builders; there are many building companies that have passed an over-priced threshold in a under-affordability market ... re-entering the market with lower priced / thinner margins doesn't address the over-supply losses, enter the government grants to 'stimulate' the market which correspondingly props up an over-priced stock ...

      Robbing Peter to pay Paul has proven not to be a revolving door ...

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    16. Ben Gardner

      Student

      In reply to Ross James

      Millions is absolutely nothing to a nation, even at a state level its pretty small. That money doesn't simply vanish, its not the most productive use but its not the same as burning it. People get taxed on that money, people use that money to buy supplies supporting businesses etc

      You're talking a few million(which both parties are irresponsible of stupid pet projects, the coalition has funded plenty of them) while the national debate is about tens of billions and the GFC which affected us by over a hundred billion(and you're attributing this to a few measly million? ha!).

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    17. Ben Gardner

      Student

      In reply to Mike Stasse

      No, the Australian Government debt is completely and absolutely different to a household debt. This is not your shopping list for the week. Debt is not a bad thing in itself for a Government, the interest payments all go back into the economy. Its all a matter of how wisely you use that money and the productivity gained through the investment which has to be greater than that lost on the *potential* of the interest payments.

      But as a reference just look up at the EU graph comparison.

      There is also a wonderful comparison of Government vs Household debt, as households pay off their debt there is less spending and the government loses revenue thus sending their debt up.

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    18. Mike Stasse

      retired energy consultant

      In reply to Ben Gardner

      Quite true, I was merely trying to put it all in perspective.... and you left out that unlike us mere taxpayers, the government can print more cash...... which I KNOW can be a problem if it's abused, but so far so good I would say.

      As I have pointed out many times here, we have far worse economic issues to deal with than debt....... just wait 'til the oil runs out!

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    19. Ross James

      Engineer

      In reply to Ben Gardner

      How do government interest payments go back into the economy, if the money is borrowed from overseas?

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    20. Mike Stasse

      retired energy consultant

      In reply to Ross James

      Who said it was? The government borrows from whosoever is happy to buy bonds. Some of those may be foreign (China has billions of US bonds..) but usually most are sold locally.

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    21. Ross James

      Engineer

      In reply to Mike Stasse

      Perhaps, but my understanding is that about 65% of the debt is outside Australia.

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    22. Ian Rudd
      Ian Rudd is a Friend of The Conversation.

      Retired accountant & unapologetic dissident

      In reply to Ross James

      I am not a fan of either Labor or Liberal but I am of facts and evidence put into context.

      Ross you claim "... the Government sent us into debt (largely due to waste and mis-management of projects)." Really "waste and mismanagement of projects" not the GFC? Not in part because of the mining-sponsored, Liberal-backed campaign that got a weak kneed Labor to back off the super profits tax?

      Bland assertions don't convince me of anything.

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    23. Ross James

      Engineer

      In reply to Ian Rudd

      I've repeated a reply I gave earlier to someone else. So our debt has nothing to do with cash handouts that went to pay for goods made in China? Millions spent on insulation rectification? Millions wasted on trying to set up alternative illegal immigrant locations that failed? Millions on handling the huge increase in boat people? Wasted money on the mis-management of the overpriced BER? Even money to take 114 people to Copenhagen including Rudd's hairdresser would have been better in the coffers. Gillard committed $320 million to promote women in politics in the Pacific region - money that we didn't have.

      Don't just blame the GFC, and we don't need to be this far in debt.

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    24. Mike Stasse

      retired energy consultant

      In reply to Ross James

      "my understanding" is NOT evidence.

      Give me a source for that, and I'll give it some credibility.......

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    25. Ross James

      Engineer

      In reply to Mike Stasse

      I didn't suggest that it was evidence. I even suggest that that you could be right. I simply said that I understood that debt went to about 65% non-Australian sources.

      However, you asked for a source, so I guess you couldn't do this yourself. Here's some, which all seem to agree. :
      http://www.dailyreckoning.com.au/australia-to-borrow-as-much-as-300-billion/2009/04/27/

      http://www.dailyreckoning.com.au/who-owns-australian-government-debt/2012/05/08/

      http://barnabyisright.com/resources-articles/who-owns-our-debt/

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    26. Ian Rudd
      Ian Rudd is a Friend of The Conversation.

      Retired accountant & unapologetic dissident

      In reply to Ross James

      So if it's not what you might have spent money on it's called waste?
      I'm not saying that some of this is not wasted or that I agree with how the money was spent or that mistakes might have been made (in hindsight) but really you are nit-picking in order to push the tired old Abbott line.

      Of all the above examples I agree it is a waste of money incarcerating asylum seekers ( Where do you get this illegal immigrant nonsense from?). In my view it's expensive, it's inhumane and it's an abrogation of our responsibility to treat these people fairly rather than to try to pass the problem onto some other country to worry about. Unfortunately your man Abbott has a plan that will be just as costly, inhumane and ineffective as labor's.

      I hope for your sake you are never forced to become a refugee.

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    27. Terry Reynolds

      Financial and political strategist

      In reply to Ross James

      Ross James, every time you make one of your inane posts it comes up on everyone else's computer screen. Your view of economics is indeed shallow and makes you look like an ignoramus to a readership that is mainly well educated. Moreover, you are clearly just pushing a one sided political party argument. You would be better off writing to a Murdock paper where your comments would be welcomed and published to a wider audience of equals.

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    28. Ross James

      Engineer

      In reply to Terry Reynolds

      Thanks for the useful feedback. I just heard a professor of economics being interviewed, and said much the same as me. If you have any idea who that might have been, you should let him know, also.

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    29. Tony Grant

      Student

      In reply to ian cheong

      Campbell Newman not get an mention...capitalism needs feeding/incentives and people working and spending...something Australian voters are forgetting...to their peril!

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    30. Tony Grant

      Student

      In reply to Thomas Liszt

      If truth were such an important issue why is Murdoch so intent on writing his on brand of history...the one that suites his personal agenda; is this part of the global conspiracy one world gov by the wealthiest?

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    31. Tony Grant

      Student

      In reply to Thomas Liszt

      Too true Thomas...IA is a read and some, many aren't capable of handling all the facts/truth is blog is one I prefer to say clear of generally...another blind Murdoch spray, most of the time!

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    32. Mike Stasse

      retired energy consultant

      In reply to Tony Grant

      Except that this sort of thinking has run its course...... For "feeding/incentives and people working and spending" to occur (ie GROWTH) the economy MUST HAVE a growing source of cheap and abundant energy. This is no longer the case.

      Capitalism as we know it is as good as finished. I give it until ~2020.

      For a preview, watch what's happening in Egypt on tonight's news.....

      http://damnthematrix.wordpress.com/2013/01/29/what-collapse-looks-like/

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    33. Tony Grant

      Student

      In reply to Mike Stasse

      I note that Abbott remortgaged $700K...living within his means?
      60% small business go under within 2 years.
      Family member working for small business doing extraordinary hours at work and home for basically normal rate of pay...Saturday/Sunday and on call one week of the month for emergencies <$50K yr?
      We can't compete with Asian imports or online business i.e. pharmaceuticals for one.

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    34. Tony Grant

      Student

      In reply to Ross James

      Well you should be on trial...the buck stops here?

      Absolute bullshit from a right-wing nut.

      Pal I put heaps of insulation in places over the last 25 years and there is always "opportunists cash-in-hand" cowboys...not rocket science...you people couldn't sort the flammables and sun-standard materials? How much crap comes into this nation daily...you people used the "normal deaths that occur in the building and construction industry for pure politics...you bastards are unpatriotic and a disgrace....Abbott cowards!

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    35. Mike Stasse

      retired energy consultant

      In reply to Tony Grant

      In fact more people died from insulation installation under Howard than under Labor......

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    36. Tony Grant

      Student

      In reply to Mike Stasse

      Mike, not only insulation but renovations in general.

      Case: Installation of Kitchens I won't use the real name "Down date B/R's" employ's under 18 yr old and blokes on the pension/unemployed...$40/100 per day cash. This bloke is a tiler, not an electrician or plumber but does questionable jobs often via phone to an "tradie mate"! If you get injured he pays for the day and says come back well you get over it...somebody feels the gap. Same bloke has pulled $10k cash for jobs by talking people around with GST and cheaper materials he already has...one job $10,000 in the hand!!!!!

      Under Abbott it will be "totally Rafferty's rules" from bottom end feeders to Billionaires Miners...somebody has to pay?

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  2. Tim Mather

    Veterinarian at Veterinary Advisory Services

    Comparing Australia's economy with Europe, US or other western economies post GFC is a similar metaphor to comparing your house which still has a roof, with others in the street who lack that structure after a tsunami or cyclone. However it does not mean your house is in good shape. We would be better to compare the Australian economy with average economies over the long term pre GFC.

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    1. Troy Barry

      Mechanical Engineer

      In reply to Tim Mather

      I think it is disengenuous that these international comparisons to the Australian economy always favour US and EU as the benchmarks. Given Australia's trade flows (70% are within APEC) comparisons with Japan, South Korea, Singapore and maybe Taiwan, Malaysia and New Zealand as other regional well-developed economies would tell us a lot more than the comparisons to France and Italy presented here. The US and the UK - our only important "Western" trading partners - only in aggregate measures also obscures the position of Australia in our natural economic context.

      If I could find a politican's quote about the Australian economic position in an Asian-Pacific context, I'd request a fact check on that basis.

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    2. N Wilson

      Biologist

      In reply to Tim Mather

      I am not sure many have argued that Australia's economy wasn't damaged by the storm, but no-one would walk along an Innisfail street post-cylone, pick the house with least damage and then start criticising its performance while relentlessly ignoring the other houses.

      (Of course, to a lot of Liberals the cyclone never hit anyway.)

      And this long term average idea. It is a bit like saying the Australian cricket team in 2014 is actually better than the English team in 2014 because the 'long term average' is that Australia is better than England. Teams change, circumstances change.

      And be careful of going back too far if you are a Liberal supporter - you hit John Howard as Treasurer with his trifecta of double digit inflation, double digit interest rates and double digit unemployment.

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  3. Mick Shadwick

    Consultant

    Tha historical data in the article are, of course, correct, though I'm not too sure just how much weight we can place on the IMF forecasts, or on anyone's forecast, for that matter, particularly forecasts out several years.
    But the key to the "Verdict" is the comment "The economy is doing relatively well by international standards". I'd suggest that current international standards are not the best benchmark for Australia. Our past economic and fiscal performance is the better benchmark, and on those standards we are not doing well.

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  4. Terry Reynolds

    Financial and political strategist

    Moody's, Standard and Poors and Fitches all maintained at least an A credit rating with Lehman Bros up until the collapse on 15 September 2008. None provided a AAA credit rating at the time of collapse as Shadow Financed Minister Andrew Robb claimed.

    Moody's argued that they had expected the US Federal Government to bail out Lehman Bros as they had with Bear Sterns which caused them to rate Lehman's Brothers higher than they should have. The US Governments rating is AAA and despite it public…

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  5. Keith Thomas

    Retired

    Are there not problems, complications or traps in comparisons of stocks (like debt) with flows (like GDP), especially in tracking variations in that stock : flow ratio over time?

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  6. Greg Young

    Program Director

    Just amazing the level of denial inherent in the comments to this very cogent analysis. The facts do not fit the desired narrative, so the facts must be wrong, or the sources suspect or the basis for comparison invalid. Anything rather than accept the truth. Australia is a wealthy, well-off country that has done very well indeed under the current government.

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    1. Ross James

      Engineer

      In reply to Greg Young

      I suggest Australia has done well, despite the Government. Take away the mining resource boom from China, and have a look at what's left. That's why we have such low interest rates - to get the rest of the economy moving so it can support us when the boom slows down.

      I find it distressing that, despite this huge boom, the government still sent us from a healthy surplus to a substantial debt, which costs us millions of dollars each day in interest alone.

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    2. Greg Young

      Program Director

      In reply to Ross James

      If you're going to blame the government for things that are not going well, then you have to give them credit when things do go well. Overall, Australia is doing very well.

      Your comments about debt have been disproven so many times it's farcical. Do some research.

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    3. Ross James

      Engineer

      In reply to Greg Young

      Interesting - all I said above was that we have a substantial debt. Are you suggesting I'm wrong on this? When I calculate the interest, yes, it is many millions of dollars per day.

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    4. Greg Young

      Program Director

      In reply to Ross James

      Yes, you are wrong. I and many others have posted the facts countless times, including in the Factcheck above, and I don't see why you can't go look it up for yourself.

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    5. N Wilson

      Biologist

      In reply to Ross James

      Mixing the surplus and debt is muddled, but of course politically convenient if one wants to denigrate a government at any cost.

      Please look at the first debt graph. The fact the shapes are the same means that debt wasn't just an Australian thing (notwithstanding no stats, but the visual correlation is compelling). Perhaps everyone was wrong or perhaps everyone was right, but regardless singling out the ALP is unfair, particularly as the Australian peak is lower. Massive Labor Debt is just a…

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    6. Ross James

      Engineer

      In reply to Greg Young

      I apologise, but I've really tried. As much as I research it, all I can find is a record gross debt of 23.9% of GDP, being over $250,000,000,000. Even from above, we have a net debt of 12.7%. Coming from a 22 billion surplus, I still call that substantial. I guess you're seeing different figures to me.

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    7. Greg Young

      Program Director

      In reply to Ross James

      The figures don't differ, it's just that you choose to subjectively call something "substantial" when it simply isn't. Refer to the analysis above for the reasons why.

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    8. Mike Stasse

      retired energy consultant

      In reply to Ross James

      WHAT huge boom............?

      With falling oil capacity, there will never be another boom.....

      It's all downhill from here.

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  7. Michael Rogers

    Retired

    The Chinese Communist Party may have some credence to a claim that they are 'managing' the economy but in other free-market privatised capitalist economies tied into global financial structures such as Australia, is there not a considerable baloney element to political parties claiming that they can 'manage' the economy.

    Is there not something absurd about political groupings that promote 'small government', 'deregulation' and the supremacy of the 'market' claiming that they will 'manage' the economy?

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  8. Theo Pertsinidis

    ALP voter

    A AAA rating does not guarantee a borrower will not default.

    The rating agencies are careful to point out that their opinions exist "within a universe of credit risk", So, there is less chance of a AAA bond defaulting than a BBB one, but still some danger.

    It's no different crossing at the traffic lights when the sign says Walk.

    Read My Thoughts at https://sites.google.com/site/theopert

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  9. Steven Waters

    logged in via Facebook

    i don't trust the rating agencies they have also got it wrong. australia is doing better than a lot of counties but this isn't thanks to labor this is because of the mining boom and the good financial position that the LNP put us in prior to labor getting into power. since then they have blown the surplus spent our future fund and put us into massive debt and we have nothing to show for it. never mind about whats going on overseas we need to look in our own back yard and all indicators are pointing…

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    1. Greg Young

      Program Director

      In reply to Felix MacNeill

      Steven doesn't even seem to know what the Future Fund is. It is not "ours", unless you are a public servant. It exists to guarantee payment of public service sector superannuation entitlements. Far from having all been spent under Labor, it currently has $85 billion funds under management, up from about $50 billion in 2007. Its independent Board of Governance includes Peter Costello.

      http://www.futurefund.gov.au/

      Amazing how easy it is to correct our ignorance when we could be bothered doing so, isn't it?

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  10. Charles Kwong

    Consultant

    When I was a young man working as a management accountant, I used to prepare monthly report on cost variances for the factory, and was advised to do a reality check against the figures by walking down the factory floor. It is an advice serves well for many years of my career when I remember seeing how some of the scrap/waste were not reflected anywhere in the variances.

    Doing an analysis from ABS and making conclusion is elegant, but needs to be checked against reality. Apart from the state of the economy of Queensland mentioned before, Victoria manufacturing is being hit just as hard with factories closing reported weekly. This may be a reality check against the claim. One possible explanation is the "latency" effect. Just as the debt-free and deficit free years of Howard-Costello time had cushioned Australia from the GFC, what could be the latency effect of the deficit-ridden and debt-laden eras of the Rudd-Gillard-Swan era?

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    1. Mike Stasse

      retired energy consultant

      In reply to Charles Kwong

      Puhlease.......... if I 'sold everything', like Howard and Costello did, then I too could easily be debt free.

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    2. Felix MacNeill

      Environmental Manager

      In reply to Charles Kwong

      Charles, the problem is that, unless you have omniscience and a super-computer for a brain you are not, in fact, 'reality checking', merely collecting a little localised anecdotal data, almost invariably cherry-picked, whether consciously or not, to suit your preconceptions.

      I think I'll take my evidence from the experts who have access to a full range of validated statistical evidence: imperfect, but far better than personal prejudice.

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    3. Rex Gibbs

      Engineer/Director

      In reply to Felix MacNeill

      See my comment that Macro Economics is just Micro Economics through the rear view mirror. Seeing more and more for lease signs. Knowing that others have lost their jobs or are working four day weeks for 4/5 salary. These are the microeconomics and I live in a mocrocosm of one familty and one small business. I don't need a supercomputer or the reserve bank to know that investment has slowed and income of families has reduced. Yes the $600bn Chinese economic stimulus helped Australia delay downturn but it's on. My business is spending its capital on keeping our staff but that will have to stop.

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  11. Mike Stasse

    retired energy consultant

    This article leaves out a most important issue: LIMITS TO GROWTH.

    Australia's economy may be one of the strongest in the OECD, but it is very very fragile. Its dependence on mining for starters is a bit like putting all your eggs in one basket.

    But worse than that, Australia is bang on target to run out of oil some time around 2020. That may come as a shock to some people but I've been tracking this for many years now
    http://damnthematrix.wordpress.com/2013/04/04/australia-still-on-target-to-run-out-of-oil-by-2020

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    1. Timothy Wong

      logged in via email @yahoo.com.au

      In reply to Mike Stasse

      >>>"From where I sit, Capitalism may be finished..."

      Fascinating to read such an observation from someone who worked in the field of energy.

      Your opening remark on about "limits to growth" can easily be translated into "limits to capital accumulation". However, and this is the crux, the very modus operandi of Capitalism is precisely the universal law of infinite capital accumulation.

      Something will have to break very soon. Immanuel Wallerstein draws upon complex systems theory and refers to such crises as "asymptotes" and as "systemic bifurcation"

      Mainstream economics is woefully ahistorical and dresses itself up in mathematical formulae so that it can also pretend to apolitical.

      In direct contrast, World Systems Analysis is a longue duree (Fernand Braudel and the Annales School of History) form of political-economic historical writing and analysis.

      http://www.iwallerstein.com/intellectual-itinerary/

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  12. Joe Monterrubio

    logged in via email @westnet.com.au

    Wait a second... Reserve Bank governor Ben Stevens says that growth a bit below trend will likely continue as "... the economy adjusts to lower levels of mining investment"; but the penultimate paragraph predicts a continuing hit to the current account, likely from "growing investment in the resource sector, increasing mining-related imports".

    The mining boom is over? The construction phase (along with the higher numbers of jobs from it) is over? Some major projects have been cancelled... should that be read as deferred until the relevant commodity price improves? "Iron ore prices are down... we're doing it tough!" say miners, but they're down off unprecedented record highs. Maybe a five year rolling average would be a better measure of how iron ore is priced?

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  13. Tim Seidenspinner

    PhD candidate at Queensland University of Technology

    Although interesting, what I am missing are adequate projections about future performance. The few projections included do not seem to take into account the great (and very real) danger of the mining boom ending and income generated being reduced by maybe 60-80% as China will buy less and less in the future. The also do not show what the projected growth of 3% per year is based on (I assume a continuation of the mining boom which is unrealistic).
    It would be interesting to see how Australia's performance…

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  14. Dianna Arthur

    Environmentalist

    I take economists' POV of any political stripe with a grain of salt until the impact of our past, present and future actions on the environment become a fundamental part of costs v benefits.

    Based purely on the above article (which is inadequate for reasons stated above), Australia is not in a crisis - I mean, Abbott would say that wouldn't he? He is hardly going to claim anything else. Again, the article concurs with my research and assessment on the 'economical' status of Australia. However, others will claim I am not an economist, which is true, I am a well-informed and intelligent person who has excellent analysis and reasoning skills, as do many here at TC.

    Meanwhile, I can only, with all due consideration to my conscience, vote for politicians who hold an inclusive view of the economy - not the anachronism that needs to relegated to history along with slavery, child labour and profligate consumption.

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  15. Gary FitzGerald

    logged in via Facebook

    The issue here is that both sides are right for the wrong reasons.

    The areas of the economy that are negatively impacting on "old fashioned" industries like retail and manufacturing are due to structural changes in the way business is conducted.

    These changes are simply not in the control of any government.

    Take the publishing industry as a stark example; the development of platforms like Amazon have quite simply made the publishing industry redundant.

    Something as ubiquitous as microsoft office has eliminated huge numbers of business support jobs.

    All any government can do is try and prepare us to handle change and while we are governed by dinosaurs (on both sides of Parliament) we will never achieve a great economy without destroying our standard of living.

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    1. Mike Stasse

      retired energy consultant

      In reply to Gary FitzGerald

      "These changes are simply not in the control of any government"

      SPOT ON........

      Multinational corporations and banksters rule the world now. They have their arms up the pollies' collective arses, and make their lips move.

      Believe anything those lips say at your own peril.

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  16. Daniel Boon

    logged in via LinkedIn

    This is - by deliberate corporate government policies - a complex issue.

    I read recently in the tabloids, that a third of government revenue went in social welfare payments (favouring the more well off courtesy of LNP); but no figures on how much revenue waived or diverted to corporations (many of whom have moved work off-shore) ...

    As Michel Stasse pointed out elsewhere, we Australians will run out of our own oil before 2020, yet the government still facilitates the sale of our superior grade oil and the buying (and refining of) inferior oil; on top of that (unlike other countries around the world), we Australians pay for gas what others do overseas. Successive governments have sold off our oil and now, our natural gas ...

    So how do the political parties believe Australia's prospects are good ....

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    1. Dianna Arthur

      Environmentalist

      In reply to Daniel Boon

      Daniel

      "So how do the political parties believe Australia's prospects are good .... "

      Because they are still welded on to business-as-usual, too frightened of losing votes of a public which is being mislead by MSM that natural resources are infinite in a world where the continued viability of corporations is vested in said business-as-usual. Ironically, this is not a conspiracy, it is simply a result of common interests of enough numbers sufficiently powerful maintain the lie that to change our ways is too dangerous.

      Look to who have the most to lose.

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    2. Daniel Boon

      logged in via LinkedIn

      In reply to Dianna Arthur

      Ummm, for a minute I thought you were arguing with me ... and the answer is, they see resources they can sell off to feather their nests ... but the bigger issue is will their off-spring be made to pay for it; the world is a small place where affluent people will find it hard to live modestly when those with much less live close by ...

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    3. Dianna Arthur

      Environmentalist

      In reply to Daniel Boon

      "...for a minute I thought you were arguing with me..."

      Nuh-ah, I wasn't even being ironic, I meant every word and I agree if we don't change from the current state of 90% of the world's wealth and benefits being held by a paltry minority, they will need more than gated communities in which to shield themselves. Although this possible future does explain the current popularity of zombie movies...

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  17. James Benjamin

    logged in via LinkedIn

    Preoccupation with Government debt levels is the equivalent of national navel gazing. I would rather have significantly higher levels of sovereign debt that ensured a well endowed infrastructure to permit a vastly more efficient transport and information transfer system - such infrastructure would have enabled the mining boom to be less of an issue for public policy in trying to mitigate the bottlenecks it produced across the country.

    In addition, there is no mention of the extraordinary levels of household debt (on a global comparison basis) where it seems Australian are more happy to speculate on real estate values that add nothing to Australia's long term productivity. Part of the reason we lack the productivity enhancing infrastructure is our profligately high levels of household debt and our wildly misguided conservatism concerning our "nation building" national debt. Alas, we get the government we deserve.

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    1. N Wilson

      Biologist

      In reply to James Benjamin

      Please add training to infrastructure as a under-skilled workforce is also a bottleneck.

      Howard/Abbott made this an ideological battleground in their attacks on TAFE and State Liberal governments are launching their attacks on TAFE and one can only assume that Abbott will pick up from before.

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  18. Rex Gibbs

    Engineer/Director

    I studied economics for two years as part of a Masters degree. I remember the macroeconomics lecture presented by one of the doyens of Australian economics where to finish the course he gave the take-home messages. Firstly he said that macroeconomics is microeconomic through the rear vision mirror, a two-dimensional view very difficult to steer by. One needs only look at the number of for lease signs and hear about the number of consulting engineering firms on the four-day weeks or laying off staff…

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    1. ian cheong

      logged in via email @acm.org

      In reply to Rex Gibbs

      Thanks Rex for adding some perspective.

      Like many "Conversation" articles, long on opinion and a bit short on detailed analysis.

      If everyone agrees we have a "two speed" economy (mining and the rest), what happens to the economy when mining turns off?

      It's nothing other than factually misleading to compare Australia only to other "advanced/European" economies, when the economic milieu is global. Any consumer who reads a label knows how much is being spent on goods produced overseas. And anyone watching the news knows how manufacturing is dying a slow death. All the "advanced/European" economies are in some trouble compared with Asia.

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  19. Liz Minchin

    Queensland Editor at The Conversation

    Hi all,

    We got an email this morning from Mike Lloyd, asking for clarification on what the units were in table 1 & 2, which as he rightly pointed out should have been clearer (though they were talked about in the text). I've checked with the author and we've now added that to the captions on the tables for anyone else who was wondering.

    I edited this piece, so should have picked that up; sometimes when you work on the same article for a long time, you lose the fresh eyes you need to spot missing detail. (Our editing page doesn't show the tables, we see html formatting where the images and tables are, and we only see them occasionally when we click over to preview mode.)

    So thanks for getting in touch Mike, we're happy to have added in that detail.

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  20. Trevor S

    Jack of all Trades

    "the overall positive assessment of Australian economic performance in the global context."

    I guess positive is relative ?

    http://business.financialpost.com/2013/06/13/australia-is-a-leveraged-time-bomb-waiting-to-blow-socgen/

    “We repeat the prognosis we gave this time last year that Australia is a leveraged time bomb waiting to blow. It is not a CDO, but a CDO squared. All we have in Australia is, at its simplest, a credit bubble built upon a commodity boom dependent for its sustenance on an even greater credit bubble in China. Yet even with Australia having enjoyed a commodity export boom it still managed to rack up a current account deficit of 4% of GDP last year! Australians have been living beyond their very ample means for a long, long time. Of all the economic bubbles I have seen over the last 30 years in this industry, this one is even more obvious than the rather prominent nose on my increasingly haggard face. And its ultimate fate is obvious to me too.

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  21. Alex Njoo

    Architect/academic (ret.)

    Whatever the Coalition says about Labor's inability to manage the economy, the fact remains that the former was not in the driver's seat during the GFC. Their claims that they are better able to manage the economy, have not been tested under a GFC.
    To date, the Coalition's contribution to the economic debate consists entirely of spreading innuendos and vicious unsubstantiated rumours.
    The fact that they're also propped by Murdoch's media, says a lot about their credibility and believability in economic matters.
    "Evidence on the ground" also shows that the mining barons are still doing well. Otherwise, the spectacle of Gina shouting from the back of a ute would have been plastered across her favourite media outlets, her buddy Murdoch.

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  22. Mike Stasse

    retired energy consultant

    It doesn’t matter which currency you use, one quadrillion is a massive number. In Japan, it represents a milestone as the country tops one quadrillion in public debt for the first time. Yes, that’s 15 zeros: 1,000,000,000,000,000.

    It’s not a number you see very often, but Japan also has more public debt than most advanced economies. Its total debt, 1.009 quadrillion is more than the economies of Germany, France, and the U.K. combined, or 240 percent of Japan’s GDP.

    Aren't you glad you live in Australia.................????

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    1. Garry Baker

      researcher

      In reply to Mike Stasse

      Numbers Mike - mere numbers.

      Perhaps read this call from the UK ... Japan Inc, is doing OK

      http://blogs.telegraph.co.uk/finance/ambroseevans-pritchard/100025346/just-set-fire-to-japans-quadrillion-debt/

      Meanwhile Australia Inc, sells rocks for a living - Take rock sales out of the equation and there's not much happening here - other than some more asset sales of a different breed.

      However, Japan has brand names to sell the world - Sony, Toyota, and a hundred others, whereas we just don't have global brands - Indeed, never bothered to foster any - Save maybe for Fosters, which is no longer an Australian business.

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    2. Daniel Boon

      logged in via LinkedIn

      In reply to Garry Baker

      I think Mike can answer for himself, but my two bob's observation's worth is that money is a promissory note for energy, there is sufficient energy available to honour the world's currencies and that the movement of people's future energy is an indenture, a quasi slavery debt, where people pay in real energy where one doesn't exist ...

      I agree about us selling rocks (and one wonders about subsidence issues from those and gas extractions), but when people can no longer afford to buy the aforementioned brand names (regardless of their quality) where does it leave the Japanese (aside from a toxic island with no natural energy resources)?

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    3. Tim Seidenspinner

      PhD candidate at Queensland University of Technology

      In reply to Garry Baker

      I do agree with you. It is high time Australia develops a sustainable industry and builds some lasting brands rather than relying on its natural resources which will end at some time (probably sooner than later). Of course Japan has its own problems but that is for a different discussion.

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    4. Tim Seidenspinner

      PhD candidate at Queensland University of Technology

      In reply to Daniel Boon

      I believe that people, especially in countries like Australia and the US would rather buy the latest tech gadgets than most other things, including for example dental care etc. People these days would rather forgo food for three days than forgoing their smartphone for the same period. That shows you the priorities. Therefore I would not be too worried about companies such as Apple, LG, Samsung, Sony etc. And most importantly, that argument should not be used as an excuse not to change things in Australia and build up some sustainable, top quality industries and build world class brands.

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    5. Daniel Boon

      logged in via LinkedIn

      In reply to Tim Seidenspinner

      Tim, can you suggest a few 'sustainable industries' we Australians could establish ...

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    6. Tim Seidenspinner

      PhD candidate at Queensland University of Technology

      In reply to Daniel Boon

      Well, what do you have in Australia and what are you good at?

      For example, green technology (solar energy, desalting technology, agricultural technology or industry) or if the level of chemistry education at Australia's unis is world glass, maybe some chemical industry. Tasmania I am sure has lots of knowledge to offer with forestry.
      Possibly, sports technology (Australia being a sports nation). Tourism is already established - here the value for money ratio needs to change (Australia needs to become cheaper in order to become competitive and gain access to a bigger audience and market).

      Obviously, this would need proper analysis, assessment and investigation. You do not really want to tell me that all Australia can do and is capable of is selling "rocks"? Insinuating that would be rather insulting and unfair to Australia and Australians.

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    7. Daniel Boon

      logged in via LinkedIn

      In reply to Tim Seidenspinner

      Tim ... I am fresh out of ideas ... I'm all for a dramatic decrease in energy consumption and shipping what remaining oil we have overseas; of the prioritising of overseas companies and countries for 'our' natural gas.

      What am I good at? Well designing and building (factually) energy efficient houses; and I have this idea about almost totally self-sufficient communities (called U-PODS) based on a land's carrying capacity.

      We have developed the most energy efficient solar panels; however…

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  23. Stephen Phillip

    Test developer

    The graph is pretty clear. Up until 2007, Australia steadily improved its debt position relative to the other economies; from a strong position, it moved to an even stronger position. From that point until now, all countries (including Australia) have understandably deteriorated. And I think we should stop there - the graph is best viewed with the speculative post-2013 figures lopped off. So, it seems to me that Australia has performed neither better nor worse than the rest of the world since the…

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