Former BHP Chairman, Don Argus notes potential weaknesses in the Australian economy and identifies two key threats to it.
Mr Argus has done a stress test on the federal budget and says a fall in the terms of trade – the difference between the price we get for our exports and imports – of just 5 per cent more than Treasury has forecast would wipe out this year’s forecast surplus of $1.5 billion two times over.
The warnings came as head of the Treasury’s macro-economic division David Gruen confirmed that the terms of trade – which had hit record levels because of China’s demand for resources – had probably peaked. Dr Gruen said in a speech yesterday that the terms of trade were “likely to work against us in future, rather than for us”, meaning that boosting productivity would be overwhelmingly the main way to lift living standards over the coming decade. “It is largely the decisions made by individual firms in the Australian economy, and the interactions between them, that will drive productivity growth over coming decades,” he said.
Describing poor productivity growth as Australia’s Achilles’ heel, Mr Argus says it has been camouflaged by the terms of trade. “That means productivity growth must play a greater role in improving living standards.
“In recent times, productivity has received greater attention in our political rhetoric, but we must be relentless in our focus on the issue if we are to secure the living standards of future generations.”
[…]They will also add weight to concerns raised by other corporate leaders recently, as he singles out two areas that have been lightning rods for business frustration with policy – industrial relations and the carbon tax – as being threats to productivity.
[…]On the carbon tax, Mr Argus says it is “breathtaking” that political leaders pushed ahead with it “without care for the enormous uncertainty already faced by business”.