All Australians are poorer as the world devalues Australia’s currency further and further. Alan Austin reports from London.
DESPITE BRITAIN'S challenges with Brexit stalled, prime ministers disappearing and a shellacking in the first Ashes Test, the British economy is much stronger than Australia’s. The Tory Government for all its conservatism asks top income earners to pay a 45% marginal tax rate. It supports its welfare recipients generously. And it has got the jobless rate down to 3.8%.
It is not just against Britain that Australia’s economic progress looks woeful. Among all developed economies, Australia is now the notable laggard. This is being sheeted home forcefully with the near-universal discounting of Australia’s currency.
Disastrous devaluation
Since June 2018, following six failed Coalition budgets, Australia’s exchange rate has fallen against every major currency and most minor currencies.
This is not normal. This is not good. This impoverishes all Australians relative to the rest of the world. That this is happening during the strongest global boom in investment, growth, jobs and profits since World War II makes it all the more shameful.
The Reserve Bank updates the Aussie dollar’s value against 19 trade partner currencies daily. It has fallen against every single one of them since the beginning of the last financial year. That includes the Papua New Guinea kina.
Those currencies, with the percentage devaluation since 30 June 2018, are:
- Thai baht, down 14.7%;
- Japanese yen, down 12.2%;
- Swiss franc, down 9.8%;
- Indonesian rupiah, down 9%;
- Hong Kong dollar, down 8.6%;
- U.S. dollar, down 8.5%;
- UAE dirham, down 8.5%;
- Vietnamese dong, down 7.4%;
- Canadian dollar, down 7.4%;
- Singapore dollar, down 7.3%;
- New Taiwan dollar, down 6%;
- Indian rupee, down 5.1%;
- Malaysian ringgit, down 5.1%;
- Papua New Guinea kina, down 4.6%;
- European euro, down 4.5%;
- New Zealand dollar, down 4%;
- Chinese renminbi, down 2.6%;
- UK pound sterling, down 0.54%; and
- South Korean won, down 0.53%
The dollar fell this month to the lowest level in more than ten years against the U.S. dollar, the Japanese yen, the Euro, the Hong Kong dollar and the New Taiwan dollar.
It fell to its lowest level on record against the Singapore dollar and the Swiss franc.
Impact on Australians
In July last year, the (notional) Smith family of Smithville, booked a family holiday in Switzerland for August this year. The travel agent in Lausanne quoted them 14,000 Swiss francs, which was (AU)$19,100. They had that covered.
Now that it is time to pay, the Smiths find they have to fork out another (AU) $2,090, not included originally. Have prices gone up in Switzerland? Not at all. The problem is that the value of the Aussie dollar against the Swiss franc has tumbled since July last year by 9.8%.
It was worse for the George family from George Town. They booked a trip to Japan for the same quoted price, (AU)$19,100. They now have to pay an extra $2,660 because of the devaluation of the dollar by 12.2% against the yen.
And it was worse still for the Bullens from Bullenbung. Their (AU)$19,100 trip was to Thailand. They now have to pay an extra $3,280 because of the 14.7% devaluation against the Thai baht.
In fact, most overseas holidays will be more expensive this year for Australians because of the collapse of the Aussie dollar against most currencies. Australians not travelling may not notice their worsening relative poverty so starkly. But all imported goods are more expensive than they would have been without this devaluation.
Why is this happening?
It is not due to the trade war between the U.S. and China, as some have suggested. Australia would gain substantially from this if the economy was well-managed.
Nor is it due to tumbling interest rates. Both are due to this Government's incompetence.
The world can now see Australia no longer leads in innovative economic management. It has stopped responding creatively to climate change and is no longer building a strong, safe community.
Observers can see Australia is losing traditional industries – motor cars, chemicals, processed steel and processed aluminium among them – and not generating replacements. The current administration is content for the continent to return to being a farm for meat, wool and cereals and a quarry for minerals — most exported with little return to the Australian people.
The current regime has abandoned any pretence of collecting taxes from the big mega-rich foreign mining companies.
As veteran business commentator John Beveridge puts it,
‘... the Australian dollar has now decoupled from the iron ore price. While iron ore has been trading around five-year highs above US$110 a tonne, the dollar has been falling.’
If mining companies actually contributed to Australia’s economy – even at a fraction of the nominal 30% company tax – the budget would have been in surplus in 2016, the debt would be two-thirds current record levels and there would be abundant funds for Newstart and other urgent essentials.
Coalition response
According to Treasurer Josh Frydenberg,
“What we’re doing to ensure the economy continues to grow is providing the biggest tax cuts that this country has seen in more than two decades and we did that against the will of the Labor Party ...”
That is precisely the wrong response. Tax cuts going mostly to the rich simply send income and wealth straight offshore. Hence the current retail crisis, slower growth and, now, the currency crumbling.
Comparisons with the recent past
It should not be like this. When the global financial crisis whacked the world in late 2008, Australia’s economic management was seen as innovative, courageous and successful. Evidence that Australia’s economy was the world’s best-performed from 2009 to 2013 included the dollar’s strong appreciation.
Over the full term of the Rudd/Gillard Labor Governments, the dollar rose 4.5% against the Hong Kong dollar, 4.8% against the US dollar, 10.3% against the Canadian dollar, 19.4% against the Euro, 24.2% against the Korean won, and a thumping 38.1% against the British pound.
There is no sign the Morrison Government is heeding this message from the watching world. It seems determined to continue governing primarily for foreign corporations. So Australians should plan to take their next holiday at the nearest caravan park.
You can follow Alan Austin on Twitter @AlanAustin001.
This work is licensed under a Creative Commons Attribution-NonCommercial-NoDerivs 3.0 Australia License
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