How about that Land of Oz? First it weathered the Asian Crisis of the late 90s. Now it seems to have come through the Global Economic Crisis as strongly as any developed economy. It is tempting to say that Australia's success is good fortune, a case of an economy not quite large enough, or simply too rich in mineral wealth, to fall victim to the plight of Western trading partners. But as The Economist's John Grimold points out, starting in 1983, governments from both the left and right put forward important economic reforms that appear to have strengthened the foundation of one of the world's wealthiest nations:
The incoming government in 1983 led by Bob Hawke, a former trade unionist, was the first to take serious remedial action. With the popular, politically astute Mr Hawke presiding, and the coruscating, aggressive Mr Keating doing most of the pushing, this Labor government floated the Australian dollar, deregulated the financial system, abolished import quotas and cut tariffs. The reforms were continued by Mr Keating when he took over as prime minister in 1991, and then by the Liberal-led (which in Australia means conservative-led) coalition government of John Howard and his treasurer, Peter Costello, after 1996.
By 2003 the effective rate of protection in manufacturing had fallen from about 35% in the 1970s to 5%. Foreign banks had been allowed to compete. Airlines, shipping and telecoms had been deregulated. The labour market had been largely freed, with centralised wage-fixing replaced by enterprise bargaining. State-owned firms had been privatised. A capital-gains tax and a valued-added tax had been brought in, and the double taxation of dividends ended. Corporate and income taxes had both been cut.
These reforms have done much more to transform the Australian economy than the recent improvement in the terms of trade. They have also transformed the country.
Still, the question is whether Australia will continue to be a model economy. The Economist offers this short video primer on the Australian economy and potential challenges ahead:
Read the full Economist article here.
And listen to an interview with Grimold here.
Filed under: global business, fiscal policy, global economic crisis, reform, economic policy, The Economist, case studies, developed economies, australian economy, john grimold, mineral wealth, australia, economic regulation, commidities