Why we actually are the economic envy of the world
Consider this. Twenty-three per cent of home owners in the United States currently have underwater mortgages. That’s close to one in four home-buyers owing more to the bank than the house is worth.
Negative equity loans account for a staggering 11 million of America’s near 49 million mortgaged homes. In go-ahead states such as Arizona and Nevada, the underwater rate is actually above half.
In California one in every 283 homes was served with a foreclosure notice last month and nationally the average price obtained at sale is $165,193 per house. That’s a lot of families being cast to the wind in a country with a poor to non-existent social safety-net.
Not that there’s any money to fix it with US net federal debt at $12.1 trillion. America’s official jobless rate of around 9 per cent is not quite as bad as Europe’s though which is above 10 per cent. Australia’s is 5.2 per cent.
Our finances are sound too. Net Commonwealth debt, according to the Mid-Year Fiscal and Economic Outlook document, is projected to extinguish completely by 2020-21 after peaking this year (2011-12) at just 8.9 per cent of GDP. That’s less than one tenth of the average net debt position of the major advanced economies projected by 2016.
Australia actually is the envy of the world.
If you want to find real economic hardship, it is not too difficult. IMF data shows basket case economies such as Greece, Ireland, and Portugal, face debt-to-GDP ratios of 173 per cent, 107 per cent, and 107 per cent respectively.
Their corresponding jobless rates are 18.4 per cent, 14 per cent, and 13 per cent.
And spare a thought for Spain with unemployment nudging 20 per cent, and a debt-to-GDP of 58 per cent. Or Italy with a milder jobless rate of 8.5 per cent (thanks to unaffordable public sector employment) but a crippling public debt around 100 per cent of GDP.
Scandinavia aside, even the “better’’ bits of Europe have numbers that would probably cause melt-down in Australia: to wit, Germany with a low jobless rate of 6.1 per cent but a debt-to-GDP ratio of 58 per cent. France’s numbers are 9.1 and 84 per cent respectively.
Even Britain owes money to the tune of 76 per cent of its annual productive output.
Why is all this worth noting?
Because if you listen to certain strident voices in politics, and you look at the seismic Queensland election last weekend, you might imagine the country is in grave peril - that it teeters on the edge of an abyss. It isn’t and it doesn’t.
No doubt voters turned on Labor for good reason in the Sunshine State - not least because it broke promises and had run out of puff in any event.
But the Bligh government was hardly NSW Labor even if its rejection was more emphatic.
It is perhaps the latest evidence of a harsh political atmosphere prevailing in this country which allowed no scope for Anna Bligh to justify selling assets (contrary to an election promise) on the basis of changed circumstances. If the GFC did not constitute solid grounds for a fiscal consolidation, what would?
Such a polarised environment appears inconsistent with flexible, appropriate governance.
There is no doubt that Australians are feeling the pinch. But the question is should we compare our current lot with the heady days of the pre-GFC (which by the way proved unsustainable) or with the rest of the world now.
Reserve Bank estimates released this week showed average Australian household net worth has actually declined by 11.5 per cent since 2007 - that is, just before the GFC.
But it should be noted that much of this decline in net worth is in non-liquid assets - principally the family home and superannuation accounts which have not fully recovered.
And while many households reel from cost of living increases especially in energy and food, the central bank’s assessment of household solvency was actually encouraging: “Solid income growth is also helping to support households’ debt-servicing capacity. In aggregate, households are managing their debt levels well, though mortgage arrears rates are still a little higher than a few years ago.’‘
The Government however, is losing the argument.
International comparisons have so far failed to cut the mustard.
Somehow it must communicate the message that the GFC did not merely blow the whistle on the myth of endless asset appreciation, it occurred because of it.
Yes the world has changed. But we got the good end of that change.
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