Trouble down under?

There must be an election coming up soon down under with the treasurer pledging no cuts to public spending and thereby not delivering on a promise of a budget surplus. He describes it as “irresponsible” to cut spending to substitute tax revenue.

Not bad going for a government who appear to turn on their words a lot more obviously than others. Julia Gillard the PM came to power in a coup ousting the previous PM on the back of not implementing a carbon tax on its very important mining industry. Something that duly came through a year or so after her appointment as a substitute for raising income taxes. How long will it be before they start raising income taxes? 

This sounds very much like a treasurer getting involved in attempting to talk their currency down. The Australian dollar is quite strong in historic terms, trading 5% above parity versus the USD for some time now. Great for travellers but not so great for the exporting community of Australia which is mainly commodity focused on iron ore. 

The RBA spent most of last year lowering rates in an effort to stop the appreciation of the AUD. Not exactly successful as it is trading just around the same level to slightly higher than when they first started the rate cutting programme. Cuts to the tune of about 1.75% did little to stop the strength if the AUD, mainly as it is still one of the developed economies with the highest interest rates out there.

The cuts to interest rates was also meant to boost internal consumption, this article says that 90% of mortgages in Oz are tracker mortgages. Not much follow through here as retail sales showed no real sign of improvement over the year. Funnily enough though the housing index stayed relatively constant too some slight gains, so that extra cash is being pumped back into property which is always a sign of impending bubble. 

Australia can afford it at the moment as still displaying relatively robust growth circa 3% a year and with a new year brings new optimism on the china growth story so its still an exciting story down there but cant help feeling they are starting to make the same mistakes that brought such trouble to the West. Increasing social spending, not addressing budget deficits and a very hot property market fuelled by speculation has proven to be a cocktail for disaster. They are in a no way in the same poor position as some western countries are but with 90% of mortgages on trackers and an economy tied to volatile commodities it wouldn’t take much to tip the scales. It would be interesting to note the banking sectors risk exposure to the property market and could a similar scenario ever end up playing out down under as it did up here re:bailouts and recaps.

http://www.bloomberg.com/news/2013-01-20/australia-rejects-savage-budget-cuts-to-get-surplus-swan-says.html

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