News of job cuts is sharing the headlines with the debt crisis in Europe and domestic political machinations, but what lies behind the job stories is what really matters.
Thanks to some tough decisions taken over recent decades, Australia is far from the global doom and gloom scenario some commentators write about. With risks hanging over the global economy, particularly from Europe, consumers and

businesses are understandably keeping a tight rein on spending, debt and costs. Retailers, along with the construction, aviation, manufacturing and fi nance sectors are finding things particularly tough. It is within these industries that many of the redundancies are occurring. At the same time, unprecedented global demand for commodities, particularly from Asia, means much of the mining sector has the opposite problem; it is struggling to find the workers with the skills it needs.

Good luck or good management?

Much of Australia’s success in getting through several global economic downturns, including the Asian Financial Crisis of 1997–99, the dot.com boom and bust in 2000, and the recent global fi nancial crisis, can be traced back to the decision in 1983 to “float” the Australian dollar and let it find its value in the world’s currency market. Once the dollar was floated, it was hard to turn back; Australia and Australians had to compete with the rest of the world, boost productivity and make some adjustments.

As a result, tariffs were reduced and trade was orientated towards the emerging economies in East Asia, well before China began to accelerate. The end of protection shifted Australia from being an uncompetitive manufacturer in areas such as clothing and footwear, to being highly competitive and successful in the education and services sectors, especially while our dollar was well below parity with the US dollar.

Professor and economist Tim Harcourt says, “Even in areas you’d least expect, the end of tariff walls and an inward looking culture unleashed Australian innovation. From sleepy surf towns such as Torquay in Victoria, companies like Rip Curl became international players, joining competitors like Billabong and Quiksilver on the world stage.”

Australia developed an education sector generating $16.3 billion in export earnings in 2010–11, as well as a professional services sector which is internationally focussed and competitive in areas as diverse as architecture, engineering, accounting, design, business logistics and management. It is no surprise that as Australia’s fortunes grew so did the need for a sophisticated, efficient financial sector to fund the country’s global expansion and engagement. Though still small, Australia has now made it into the top 10 securities exchanges in the world. Importantly, an open economy didn’t mean

having to dispense with notions of fairness in the labour market and employees have been somewhat protected through an evolving industrial relations system. The country’s unique industrial relations framework has helped to produce an

unemployment rate nearly half that of the United States and other northern hemisphere counterparts, says Harcourt.

Moving forward

Where Australia heads from here rests largely on its ability to remain competitive and innovative in key areas of the economy, particularly resources and education, and to learn from international best practice. Potential models lie with countries like Germany, the world’s third largest industrial power, which has forged a modern, highly skilled and well paid workforce and strong manufacturing industries, but not without painful adjustments. The Department of Education, Employment and Workplace Relations is predicting all industries, with the likely exception of manufacturing, will increase their employment over the next three years. Boosting the employment options in manufacturing will depend on our ability to innovate and to utilise our strengths in education and resources. Governments can help set the framework for a productive economy but it is largely up to Australian businesses to increase productivity and drive economic growth. Much of this will come from the ability of individuals and businesses to be flexible and use talent effectively, particularly with the right training and skills development. If history is anything to go by, opportunities for Australia in the global economy today will be very different from the opportunities in a decade’s time.

It is true that for people who have lost their jobs and struggled to find a new one, things might look bleak, but it is also true that the “lucky country” has a solid track record when it comes to changing with the times.
www.perthfinancialplanning.com.au

Today's cost of living: it's a mixed bag

Few dinner table conversations pass without some mention of the high cost of petrol at the local bowser, hikes in gas and electricity prices, or the cost of fruit and vegetables.

It is almost a national pastime to discuss the cost of living in negative terms, without feeling a need to refer to facts or fi gures! Rarely do you hear anyone talk about how much wages or salaries have risen, our houses have grown or cars improved. Other positives, such as increased savings, growing investments and superannuation are also often overlooked.

Looking at wages and prices

A key to working out whether you are better off is to look at wages and income against prices. For sure, the price of some items might be going up—it is hard to ignore the rising cost of utilities or fluctuations in fruit and vegetable prices. Yet the costs of many of the items we regularly buy including food, clothing and household appliances are actually decreasing.

To help put the cost of living into perspective, the economics team at CommSec looked at the cost and quality

of a range of goods 30, 40 and 50 years ago and compared them to what could be bought today. Whether you measure the cost in today’s dollars or compare the prices of goods with the value of wages, the study concluded Australians in 2012 are better off than their parents and grandparents. For example, according to CommSec, based on the average weekly wage for fulltime employees of $276.90 in 1982 it would have taken about 38 weeks to pay off the latest model Holden then priced at $10,633. Today it would take the average worker about 30 weeks to pay off a new Holden Commodore costing about $39,990. Most people agree the quality and accessories in today’s cars are better than they were 30 years ago. The same could be said of many household appliances from vacuum cleaners to televisions.
Housing: an exception

One of the few areas of affordability thathasn’t improved with time is housing.The median Sydney house price of $77,100in 1982 would have taken the average wageearner 23 years to pay off. Today it wouldtake the average worker about 42 years topay off an average-priced Sydney home.

According to the latest HouseholdExpenditure Survey from the Australian Bureau of Statistics, a record 36.2 per cent of Australian families are paying off a mortgage, with mortgage repayments dominating weekly spending. Mortgage repayments are among the biggest household weekly outlays, along with petrol and rent. ‘Mortgage stress’ occurs when homeowners are paying 30 per cent or more of their gross incomes on home loan repayments. Unfortunately, the number of Australians currently experiencing this type of stress is on the rise, particularly among lower income earners. The high cost of housing will impact many people’s spending on other items as well as their ability to save.
Competing forces

Economic changes and technology are key forces in making us adjust the way we use our money. For example, the internet and online purchasing are driving major shifts in the way we purchase the things we need or want.

Other key pressures leading to structural change within the economy include a booming resources sector and a high Australian dollar. All of these factors and competing forces are taken into account by the RBA as it manages monetary policy. The RBA’s challenge is to set interest rates at a level that keeps inflation under control and ensures stability in the overall economy. Understandably, any interest rate moves make a considerable difference to consumer ‘sentiment’ and how confident people feel about spending.

However, what the statistics show for the whole country is not necessarily reflected in individual experiences so it’s often hard to tell in real terms whether we are better off than we were in the past unless we do the sums as CommSec has. Certainly with higher comparative wages, many goods are cheaper to buy and there are more options available to make these purchases. At the same time, the cost of housing and everyday essentials such as electricity and petrol, coupled with a desire to save more money, can eat into your disposable income. If you would like to discuss the cost of living and what it means for your investments, or if you have any other concerns, please contact the financial planners at Cornish Wealth Management.

New tax rates and the government super co-contribution

In less than two weeks' time Australians will have new tax rates. The government has placed great emphasis on how these rates will "free over 1 million Australians from having to lodge a (tax) return".

My concern is that the ATO clearly states that to be eligible for the government super co-contribution you need to "lodge your income tax return for the relevant income year".
Does this mean that the current Labor government has just made 1 million of the lowest paid workers in the country ineligible to receive the very worthy government co-contribution?