The days of Australia being cushioned from the crisis are fast coming to a close
We head into 2015 against the backdrop of global economic uncertainty. The days of Australia being cushioned from the worst effects are fast coming to a close. The changes that are unfolding on the economic front will impact on the lives of everybody. The exact outcome however is not predetermined. It is possible for ordinary people to shape events.
With Europe and China slowing down, and Japan continuing to stagnate, the world economy is at risk of a prolonged slump. While there is a lot of talk about a ‘recovery’ in the US, this has been a joyless recovery for the working class, somewhat based on the growth of shale gas fracking.
While a boost for the US economy, the huge growth of the shale gas sector has contributed to the tumbling of world oil prices. Now at around $45 USD a barrel, prices have fallen more than 50% since mid 2014. While this has helped reduce the price of petrol, it has also created massive problems across the world.
Alongside the oil price collapse, global prices for iron ore, coal and gas have also plunged. Overall commodity prices fell 30% in 2014. This is already having a big impact on the Australian economy. With commodity exporters getting far less for their products, they are paying far less in tax and royalties to governments. The resource rich states of Queensland and Western Australia, as well as the federal government, are seeing steep revenue declines as a result.
The main thing that protected Australia from the worst of the global economic crisis that started in 2008 was high commodity prices and exports to booming economies like China. Now even this is coming unstuck. Australia is now much more exposed to global economic shocks.
As a result of slower exports and lower commodity prices Australia has already seen a number of mines closed and other projects shelved. This had led to significant job losses. The Liquefied Natural Gas (LNG) sector is also now in serious trouble. With gas prices linked to the price of oil, many projects are looking shaky. It is expected that the ¬industry’s export revenue could be as much as $20 billion a year lower than what the government expected a year ago.
Last year the government expected the volume of LNG ¬exports to skyrocket making Australia the world’s largest supplier. They also wrongly predicted gas prices to increase over the next four years. With mining investment peaking they were hoping that the LNG sector would help fill the gap and become Australia’s second largest export industry. These hopes have now been shattered and the budget will be impacted significantly.
In fact what they were hoping would be a positive for the Australian economy could in fact turn into its opposite. At the moment there are seven giant LNG projects being built at a combined cost of about $200 billion. This represents the largest capital investment ever made in Australia. If any of these projects were to fail, or become unprofitable due to lower gas prices, it would have much wider implications for the economy. The banks that invested in the projects would be particularly at risk.
The currencies of commodity exporting nations, like the Australian dollar, have taken a hit as a result of the oil price decrease. Some economists have pointed out that weaker dollar will actually help make Australian exporters more competitive, and cushion the blow of lower commodity prices.
The problem is that is a lower currency also reduces the global purchasing power of ordinary consumers. Many of the products we buy come from overseas and have no local replacements. The demise of the local manufacturing sector only means consumers are even more reliant on imported goods. With less money left over to spend on local goods and services this can impact on domestic demand and cancel out any positives for the federal budget.
Government under pressure
All this puts massive pressure on the federal government. While Abbott would like us to believe that he has no choice other than to reduce spending, the truth is any government facing lower revenues has two basic options. Either they can seek to cut social spending, and find ways to make the mass of ordinary people pay more, or they can increase taxes on those who make profits.
The truth is that capitalist governments defend profit making interests, so Abbott’s budget measures are aimed at sheltering his big business backers from the economic fallout. We can expect him to look at even more tax breaks and corporate welfare, while pushing for the working class to pay more. While failing on some fronts at the moment he will also continue to offer incentives to big business and state government’s to invest in infrastructure projects to help fill the gap.
While it’s unlikely to be put on the agenda in this term, some Liberal MPs have already put forward the prospect of broadening and increasing the GST, a tax that has a disproportionate impact on the working class and poor.
While the Abbott government has already started to implement a series of unpopular budget measures, the worsening economic situation will force them to continue in this direction. That said, the process of actually implementing them is easier said than done. The government is already unpopular and lacks authority. They face a hostile Senate with some of their key measures remaining blocked. With public opinion clearly opposed to cuts aimed at ordinary people, Labor and the Greens have been under pressure to oppose some of the more extreme measures. This is despite both of them voting for similar policies in the past.
At the moment big business commentators are pushing for a type of ‘national unity’ in regards to the budget measures. They are pressuring Labor to act in a bipartisan way, the same way they do when it comes to issues like support for imperialist wars. Some in the ruling class are worried that if the Senate deadlock remains, and Abbott continues to lack authority, people can lose faith in the entire political system. Things have the potential to get out of their control.
Even in a best case scenario, Abbott still risks becoming the fourth prime minister in a row to lose a parliamentary majority at a federal election. The recent Victorian state election highlighted the political instability that exists in Australia and the potential for people to throw governments out after just one term.
Abbott goes into 2015 looking towards his government’s second budget while still trying to get some of last year’s changes through. In late 2014 Abbott made some changes to his cabinet make up and attempted to reframe the government’s message. He made some minor changes to some policies, particularly the proposed higher education changes and the Medicare co-payment fee. While these cosmetic changes may help the government to steady temporarily, they will not help them overcome the substantial economic and political problems they face. Just like last year 2015 is likely to be a rough ride for Abbott and co.
While it is important to understand the weaknesses of those who represent profit making interests, we also need to understand the strengths and weaknesses of the mass of ordinary people. While big business effectively has two major parties to choose from, ordinary people do not have a political vehicle that represents their interests. This means the debates that take place are one sided and inevitably our interests are continually undermined.
If we are going to put an end to the situation where big business interests dominate, we need to build a political alternative to the two big business parties. With a political movement of our own we would be better equipped to organise to advance our interests. Collectively we could intervene in the situation to shape events in our favour. We would no longer have to accept the dictats of big business. While fighting against big business and government attacks in 2015, taking steps towards building a working class political alternative needs to be a priority.