EDITORIAL: A way out of the economic tsunami?
by Peter Westmore
News Weekly, April 4, 2009
At least one country has devised a credible strategy to cope with the global economic downturn.
The world faces a 30 per cent chance of going into a depression lasting five or more years. This is the alarming conclusion of the Economist Intelligence Unit (EIU) about where the global economic crisis is heading.
Its recent report, issued on March 19, warned that countries most at risk were those whose "growth was driven by credit expansion and asset price appreciation", and whose economies were geared to global growth and commodity dependence. All these factors apply to Australia.
The EIU report also discredits the forecast of the federal Treasury, released just two months ago when the Rudd Government unveiled its $42 billion stimulus package, that Australia's gross domestic product would grow by one per cent in 2009 and two per cent next year, despite negative growth in the last quarter of 2008.
The business consultancy, Dun and Bradstreet (D&B), issued a report on the global economy recently which forecast that Australia would slide into recession in 2009.
Heightened risk for Australia
"A collapse in world trade, particularly in the Asia-Pacific region, and a sharp drop in economic growth for China have significantly heightened the downside risk to Australia's outlook," the D&B report said.
The response of the Federal Government has been to squander its $20 billion surplus from the last Budget in a futile attempt to stimulate consumer spending to massage Australia's GDP figures, and a multi-billion spending spree on home construction and schools.
These quick-fix programs are designed to jump-start the economy, but, in the likely event that they fail, will leave Australia deeper in the red, with an unsustainable and growing net foreign debt which is now above $660 billion.
In times of economic distress, it was quite appropriate that the Government should have used the surplus to cushion the effects of the global economic crisis. But the measures already taken will not help over the longer term.
It is instructive to look at what a country with a similar population to Australia's has done to address the global crisis.
Taiwan, like Australia, is a major exporter, with overseas shipments equivalent to about two-thirds of its GDP. Unlike Australia, its government has been transparent about the effects of the financial crisis.
Last year it revealed that, in the third quarter of 2008, GDP had fallen one per cent from a year earlier. In the fourth quarter of 2008, Taiwan's GDP had fallen by 8.4 per cent from a year earlier, and the Government anticipates a fall of 6.5 per cent in the first quarter of 2009, followed by seven per cent in the second quarter.
Last December, exports were 33 per cent lower than a year earlier, and in January the corresponding figure was 42 per cent. Industrial production fell by a staggering 43 per cent.
The Taiwanese Government's response to the crisis has been quite different from Australia's.
Instead of direct payments, Taiwan has distributed consumer vouchers to all adults in Taiwan, which can be used to pay for goods and services at registered retailers, wholesalers and food and beverage establishments.
The vouchers can be used until the end of September, and will help to maintain consumer spending.
This is a copy of an initiative taken in Japan in 1999, at the time of the Asian economic meltdown.
The Taiwanese Government has also introduced income-support programs for families and households living near the poverty line, subsidies for firms taking on new employees, and a range of industry-assistance programs to keep businesses operating.
Separately, the Government has brought forward major infrastructure programs, including expansion of Taipei's Mass Rapid Transit system, bridge and rail construction, school improvements, and other initiatives.
The basis for underwriting such projects was how much benefit they would produce in the long-term. As one economist said: "Everyone agrees that we need jobs, and everyone also agrees that there is a pressing need for infrastructure projects.
"This crisis can only be solved by spending public money on projects that will enhance the long-term economic health of the country, on projects that would be necessary even without a financial crisis. In other words, we should do what we would do anyway - just do it faster."
The Government has also reduced taxes, to encourage local investors to retain funds in the country, or repatriate them from overseas.
The Taiwanese Government has a comprehensive plan to support export industries by targeting new markets overseas in the Middle East, Latin America and mainland China, already Taiwan's major trading partner.
This approach provides a blueprint which could profitably be emulated in Australia.
- Peter Westmore is national president of the National Civic Council.