Good numbers

Australia's rebalancing act can survive politics

Australia's rebalancing act can survive the country's political battles. Rival parties contesting the federal election on July 2 have so far produced few solutions to tackle the country's fiscal deficit. The ruling coalition led by Prime Minister Malcolm Turnbull has defended its plans to reduce corporate taxes from 30 to 25 per cent over the next 10 years, while the Opposition Labor Party has promised to increase spending on health and education. Fortunately, the next government will have room to manoeuvre.

With growth chugging along at an enviable 3.1 per cent, Australia is in fine health when compared with the rest of the developed world. Yet despite almost a quarter century of unbroken economic expansion its budget deficit, which has grown sharply since 2008, looks entrenched. Education, health, social security and welfare account for 60 per cent of total government spending, according to Moody's, and politicians will struggle to rein them in.

Though net government debt is still just 18 per cent of gross domestic product (GDP), Australia's borrowing since 2008 has increased the most among the nine countries that still have triple-A credit ratings. Wage growth has slowed from four per cent a year a few years ago to half that recently as mining investment has declined. Sluggish employment data prompted the central bank to announce a surprise interest rate cut in May, overriding concerns that cheap money will further inflate rising house prices in Sydney and other major cities.

Yet other parts of the economy are coming to the rescue. Helped by the weaker Australian dollar, travelers from Asia, and particularly China, are discovering the attractions of clean air, fresh food and top-class schools and universities. Net exports of services, including tourism and education, are now contributing 0.5 percentage points to GDP growth, according to HSBC.

This transition should survive further political upheaval. Turnbull, who became Australia's fourth leader since 2013 when he deposed Tony Abbott last September, is the favourite to retain power. Critics may carp that the government should be talking about broadening the tax base and increasing the country's sales tax. But that is expecting too much of an election campaign. Whoever wins the election will have options that are only dim memories for most Western governments.