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The luck of the Aussies

Even as the world seems caught in a financial meltdown, has Australia managed to escape? Mark Beeson

Australia is famously known as ‘the lucky country’. Although this was originally meant ironically, in many ways, it is. Despite embracing many of the financial sector innovations that have undone the American economy, Australia has an underlying economic lifeline: its vast natural reserves of iron ore, coal and gas mean that, as long as China’s economy continues to expand, its overall position is much healthier than the other Anglo-American economies that embraced and promoted neoliberalism with such enthusiasm in the 1980s and 1990s.

Significantly, Australian policymakers can only take some of the credit for this. One reason why the Australian financial sector is not as badly affected as elsewhere is because Australia ‘luckily’ had its own financial crisis nearly twenty years ago. When Australia’s sleepy banking sector was liberalised by a notionally left of centre Labor government, it precipitated precisely the sort of entrepreneurial lending and recklessness that have brought America’s financial sector to its knees. A desperate chase for market share culminated in Australian banks writing off nearly A$30 billion of unrecoverable debts by the early 1990s.

This may seem small beer in today’s climate, but it nearly led to the death of one of Australia’s big four banks, and represented a major crisis in a relatively small economy. As a consequence of this near death experience, the banking sector is now in a comparatively strong position. The banks are generally soundly capitalised with low levels of non-performing loans and limited exposure to the troubled housing sector in the US — an important consideration given the housing bubble in Australia and high levels of individual indebtedness. Moreover, there has been very little lending of the ‘sub-prime’ variety in Australia, and demand for housing has remained comparatively strong.

Both sides of politics in Australia have made fiscal probity a big part of domestic policy following the experiences of the 1980s and early ‘90s. Government debt has largely been paid off, and compulsory superannuation schemes have become the order of the day. The newly installed government of Kevin Rudd has used windfall tax revenues from the booming resource sector to bankroll the ‘Building Australia Fund’.

With more than A$20 billion to invest, it is overseen by a relatively independent semi-government authority, Infrastructure Australia. The federal government is now being urged by state governments and local business to spend this money in classic Keynesian style, in order to promote growth and insulate Australia from the impact of any global downturn.

True, Australia is lucky to have the option. It may not be enough, however. Australia still has the economic profile of a developing country, in that much of its affluence is propped up by a resource sector that remains hostage to developments in the international economy over which Australian policymakers have no control. If China proves not to be ‘uncoupled’ from the downturn in the US and its growth slows significantly, Australia will almost certainly be plunged into recession.

Despite Australia’s historical role in promoting the supposed merits of small government around the region, its own structures of governance remain extensive and — by contrast with the US, at least — surprisingly competent. Australia’s policymakers have moved quickly to coordinate the activities of Treasury, the (independent) Reserve Bank, the Australian Prudential Authority and the Australian Securities and Investment Commission. The hope is that these agencies will be able to provide a coherent and coordinated response to the international crisis and insulate Australia form its worst effects.

It will be an interesting test of the capacity of a relatively small, peripheral economy to withstand the backwash of global crises. The long-term geopolitical significance of recent events was clearly revealed when Rudd suggested he looked to China to underpin Australia’s long-term economic fortunes. The reality may be that no matter what Australia does, its fortunes remain dependent on the price of things that are dug from the ground.

Mark Beeson is Professor of International Politics, University of Birmingham

Photo: Getty Images
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The Conservatives have failed on home ownership. Here's how Labour can do better

Far from helping first-time buyers, the government is robbing Peter to pay Paul

Making it easier for people to own their own first home is something to be celebrated. Most families would love to have the financial stability and permanency of home ownership. But the plans announced today to build 200,000 ‘starter homes’ are too little, too late.

The dire housing situation of our Greater London constituency of Mitcham & Morden is an indicator of the crisis across the country. In our area, house prices have increased by a staggering 42 per cent over the last three years alone, while the cost of private rent has increased by 22 per cent. Meanwhile, over 8200 residents are on the housing register, families on low incomes bidding for the small number of affordable housing in the area. In sum, these issues are making our area increasingly unaffordable for buyers, private renters and those in need of social and council housing.

But under these new plans, which sweep away planning rules that require property developers to build affordable homes for rent in order to increase the building homes for first-time buyers, a game of political smoke and mirrors is being conducted. Both renters and first-time buyers are desperately in need of government help, and a policy that pits the two against one another is robbing Peter to pay Paul. We need homes both to rent and to buy.

The fact is, removing the compulsion to provide properties for affordable rent will be disastrous for the many who cannot afford to buy. Presently, over half of the UK’s affordable homes are now built as part of private sector housing developments. Now this is going to be rolled back, and local government funds are increasingly being cut while housing associations are losing incentives to build, we have to ask ourselves, who will build the affordable properties we need to rent?

On top of this, these new houses are anything but ‘affordable’. The starter homes would be sold at a discount of 20 per cent, which is not insignificant. However, the policy is a non-starter for families on typical wages across most of the country, not just in London where the situation is even worse. Analysis by Shelter has demonstrated that families working for average local earnings will be priced out of these ‘affordable’ properties in 58 per cent of local authorities by 2020. On top of this, families earning George Osborne’s new ‘National Living Wage’ will still be priced out of 98 per cent of the country.

So who is this scheme for? Clearly not typical earners. A couple in London will need to earn £76,957 in London and £50,266 in the rest of the country to benefit from this new policy, indicating that ‘starter homes’ are for the benefit of wealthy, young professionals only.

Meanwhile, the home-owning prospects of working families on middle and low incomes will be squeezed further as the ‘Starter Homes’ discounts are funded by eliminating the affordable housing obligations of private property developers, who are presently generating homes for social housing tenants and shared ownership. These more affordable rental properties will now be replaced in essence with properties that most people will never be able to afford. It is great to help high earners own their own first homes, but it is not acceptable to do so at the expense of the prospects of middle and low earners.

We desperately want to see more first-time home owners, so that working people can work towards something solid and as financially stable as possible, rather than being at the mercy of private landlords.

But this policy should be a welcome addition to the existing range of affordable housing, rather than seeking to replace them.

As the New Statesman has already noted, the announcement is bad policy, but great politics for the Conservatives. Cameron sounds as if he is radically redressing housing crisis, while actually only really making the crisis better for high earners and large property developers who will ultimately be making a larger profit.

The Conservatives are also redefining what the priorities of “affordable housing” are, for obviously political reasons, as they are convinced that homeowners are more likely to vote for them - and that renters are not. In total, we believe this is indicative of crude political manoeuvring, meaning ordinary, working people lose out, again and again.

Labour needs to be careful in its criticism of the plans. We must absolutely fight the flawed logic of a policy that strengthens the situation of those lucky enough to already have the upper hand, at the literal expense of everyone else. But we need to do so while demonstrating that we understand and intrinsically share the universal aspiration of home security and permanency.

We need to fight for our own alternative that will broaden housing aspirations, rather than limit them, and demonstrate in Labour councils nationwide how we will fight for them. We can do this by fighting for shared ownership, ‘flexi-rent’ products, and rent-to-buy models that will make home ownership a reality for people on average incomes, alongside those earning most.

For instance, Merton council have worked in partnership with the Y:Cube development, which has just completed thirty-six factory-built, pre-fabricated, affordable apartments. The development was relatively low cost, constructed off-site, and the apartments are rented out at 65 per cent of the area’s market rent, while also being compact and energy efficient, with low maintenance costs for the tenant. Excellent developments like this also offer a real social investment for investors, while providing a solid return too: in short, profitability with a strong social conscience, fulfilling the housing needs of young renters.

First-time ownership is rapidly becoming a luxury that fewer and fewer of us will ever afford. But all hard-working people deserve a shot at it, something that the new Conservative government struggle to understand.