Whingeing Aussies and their beer belly

Once we put up with whingeing Poms. Now it’s whingeing Aussies. They are far richer than us, so what’s the beef? And why should we bother?

The problem is China — or, rather, China plus Australians’ punchy self-importance. In security matters that self-belief took it into Iraq in 2003 and is taking it there now (with a John Key coda, about which more next week). In economic matters it led Australian firms to overbank on China.

In 2009 China’s authorities responded to the steep fall in international trade after the United States financial collapse and subsequent global financial crisis (GFC) by massively investing in physical infrastructure and buildings.

The difference between that and rich-world central banks’ massive money-printing was that China had something concrete — literally — to show for it.

And that required lots of steel which needed iron ore, coking coal and coal for electricity. Australia digs up both. Australia boomed — in sales to China and in frenzied investment of around $A250 billion in new mines and transport facilities to sell still more.

Result: jobs, high wages, huge profits and much puffery about being the only “developed” economy to stay growing through and after the GFC.

Problem: China tailed off its investment as GDP growth picked up and as a housing glut developed. Iron and coal prices plunged. Chinese steel producers now talk of phasing down output by around a quarter, says an expert who spent time with them two weeks back.

Problem: mining firms predicated their Australian investment boom-bubble on China’s steel production doubling.

Result: some mines closed and low or no return on the massive capital outlay. Household result: unemployment 6.4 per cent in January and rising on a 64.8 per cent participation rate. (Here the December numbers were 5.7 per cent on 69.7 per cent).

Deeper result: the exposure of Australia’s productivity nakedness. It is not a pretty sight. No beer belly is.

Slimming that flab will require a big fall in the exchange rate and so in real incomes plus extensive regulatory reform.

But Australians have had it too good for too long. Easier to whinge. Which they are doing via elections: state governments out after only one term in Victoria and Queensland (where Labor went from seven seats to government!) and a real prospect of the same for the federal government next year.

Prime Minister Tony Abbott himself is now at parlous risk of dismissal after at least two-fifths of his MPs wanted him out in a “spill” vote on February 9.

Abbott’s runaway mouth and incoherent political (mis)management led the magisterial United States Council of Foreign Relations think tank to muse last week that he is “the most incompetent leader of any industrialised democracy”.

Symptoms of decline: federal and state fiscal deficits climbing into the future. The federal deficit is now forecast at $A30 billion and rising. Business confidence has been shaken, which will deter investment. The torrent of westward Tasman migration has ended.

Fixing the federal budget requires serious, painful structural economic reform. But Paul Kelly, eminence-grise of Australian political analysts, has written that the “irresistible” consequence of the Abbott mess is that “our system is moving inexorably into a ‘death of reform’ straitjacket. The 2016 election is likely to be dominated by political advice to Liberal and Labor not to provoke the voters. This will put Australia on a long-run trajectory of decline and growing unhappiness.”

Abbott has already retreated from some fiscal and reform measures.

It is against that murky economic and political backdrop that the Australia-New Zealand Leadership Forum will on Friday muse on global and bilateral political, economic and regulatory issues (including the perennially rejected New Zealand bid for mutual recognition of dividend imputation).

Simultaneously John Key and Abbott meet over two days, an awkward contrast of high achiever and clown prince.

On the forum’s sidelines and at the Australia-New Zealand cricket next day (guess why some will be at the forum) Australian business participants will likely intone a now-frequent refrain: “We would like your government.”

They like and respect Key and admire Bill English’s reforms, now in their third term and with new objectives. Last Thursday English laid out to public servants a sharper “customer” focus in a cyber world that empowers citizens with “choice” and a broadening of welfare investment into a “social investment” package which will be a centrepiece of the 2015 budget.

Could we be excused a little smugness? No. Australia alternates as No 1 or No 2 source of foreign exchange earnings with China (which is still buying our soft commodities, also at lower prices). If Australia’s economy flags, that is a drag on ours.

So New Zealanders need Aussies to stop whingeing and do the hard yards to fix their show. Trouble is, that looks a long way off. And if on Saturday we win the cricket…