Two Speed Economy Potentially got a Turbo Boost

30 Nov 11

As expected the media is full of conflicting reports on the impacts of the budget cuts announced by the Gillard Government and the opposition's comments are no help either.

Treasurer Wayne Swan and other Labour party leaders seem to have been trained well in the lead up to the announcement of budget cuts to secure a return return to budget surplus by 2012. Using the line, "We need to strike the right balance between fiscal discipline and continuing to support job creation and growth, between those who say we should take an axe to the budget and those who tell us to forget about the surplus,'' Mr Swan has said.

Whilst Australia's economic fundamentals are the showpiece of the world as confirmed by ratings agencies overnight, and economic views from commentators, it is clearly evident that despite a slowdown in Chinese econonic activity, Australia's fortunes remain closely linked to what we dig out of the ground and export, largely without adding any value on our shores.

This begs the question, how can cutting public sector spending do anything but increase the divide between the resources sector and the rest of the economy.

Opposition Treasurer Joe Hockey has said that "The Government’s Mid Year Economic and Fiscal Outlook (MYEFO) is another con job that confirms Labor’s promises on the economy cannot be believed.

Labor is all talk and no action when it comes to delivering a Budget surplus. This year was meant to be the year of decision and delivery. Instead it’s been a year of economic confusion, wasteful spending and failure to deliver. Wayne Swan is asking Australians to believe him when he says he can turn a $37 billion deficit into a surplus in just one year.

Without doubt global economic conditions, particularly in the Eurozone are poor with a relatively short-term grim outlook, meaning that action to safe-guard the Australian economy must be taken, but spending cuts, and an attempt to return to surplus so quickly, will impact several sectors of the Australian economy, and in theory put jobs at risk. The roll-on effect is an increase in the divide between the haves (the resources sector) and have nots (large parts of the remainder of the economy). The two speed economy remains unchecked and our reliance on the resources sector is boosted.

During a speech in Sydney, former South Australian premier Mr Mike Rann outlined the South Australian government's success in growing the state's mining sector. But he said he strongly disagreed with those who believed that an embrace of mining came at the expense of Australia's manufacturing industries.

He said countries that had made a better recovery from the global financial crisis were those strongly based around high value added, export oriented manufacturing. "I firmly believe that for Australia, as well as for my home state, we cannot allow manufacturing to wither because once it is lost it is very hard to rebuild," Mr Rann told the Whitlam Institute Symposium.

He cited research which suggested that each job in the manufacturing sector generated between two and five jobs in the rest of the economy. Without a vibrant manufacturing base, societies tended to divide more starkly between rich and poor, between those who had access to steady, well paying jobs and those whose jobs were less secure and precarious.

This theme is not new new's to this website's newsfeed, particularly as there are examples all over the world where a manufacturing base has been allowed to whither, and people within that economy are now poorer and unemployment rates are high.

The Gillard Government must act to ensure that Australia's lucky country status is not based soley on our mineral reserves alone. Budget adjustments should in no way impact the manufacturing sector and rumoured defence cut-backs, as one example should not be tolerated, as a significant portion of Australia's manufacturing base is closely tied to the defence sector.