Tanner decries 'chronic weaknesses' in economy
By Mark Davis | smh.com.au | 04 September
A senior Rudd Government minister has expressed concern at ''chronic weaknesses'' in the Australian economy, singling out a ''very large'' current account deficit as an entrenched problem that needs tackling.
In unusually candid remarks, Finance Minister Lindsay Tanner told The Age the mining boom of the past decade had masked underlying problems that have left the economy vulnerable to external shocks and excessively dependent on overseas borrowing.
Lamenting Australia's ''pretty ordinary household savings rate'' and its ''very mediocre export performance'', Mr Tanner said many benefits from reforms introduced in the 1980s had now run their course.
''There is a mixture of issues there which we ignore at our peril,'' he said.
''Our economic policy needs to be informed by the central question: what will we be selling to the rest of the world in 10 or 15 years time?'' It is the first time a senior Australian policymaker has raised such concerns since the 1980s when Labor treasurer Paul Keating said Australia risked ''banana republic'' status if it kept living beyond its means.
The current account deficit is the shortfall between the income Australia earns from exports and overseas investments, compared to what it pays to foreigners for imports, interest on overseas borrowings and dividends. Mr Tanner's comments reflect a new focus by policymakers after the financial crisis on the need to address imbalances such as the US current account deficit and massive surpluses of Asian economies.
Mr Tanner is also eager to promote a new productivity agenda, including boosting competition, investing in economic and social infrastructure, improving workforce education and skill levels and streamlining business regulation.
His comments come after a significant deterioration in Australia's external accounts in recent months. According to the Bureau of Statistics, the trade deficit jumped $1 billion to $1.6 billion in July, while the current account deficit widened to $13.3 billion, or 4.5 per cent of GDP, in the June quarter.
The current account was a major issue in the 1980s but the debate has been dormant in recent years despite the deficit being stuck at around 6 per cent of GDP for most of past decade. Mr Tanner said current account deficits were less troubling under floating exchange rates ''but they still matter, particularly if they are substantial and entrenched''.
''It does mean that [our economy is] vulnerable to external shocks and that is precisely what has happened,'' he said. '
'Although it is reasonable to assume that Australia will have a substantial current account deficit indefinitely … the scale of that deficit is still in my view an issue … It is very important that we, over time, improve our economic performance.''
He pointed to Canada, which has a similar economic structure to Australia but had a current account surplus for most of the last decade.
First published by Smh.com.au on September 04 2009
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