By Denis Bright
The projections in The Mid-Year Economic and Financial Outlook (MYEFO 2023) offered a peek into our national financial future for the New Year and beyond.
MYEFO 2023 was released by our financial leaders with strident and confident expectations on 13 December 2023.
These future concerns were offset by the improvements in most indicators since delivery of the Australian budget on 9 May 2023.
The good news enabled our financial leaders to clasp their MYEFO 2023 papers more tightly.
The MYEFO papers were a collective badge of honour for the Albanese Government with the prospect of two consecutive budget surpluses and some evidence that the slow-down in the global economy might result in a softer landing than expected some months ago.
Walter Frick of the Harvard Business Review (27 December 2023) offered a more positive interpretation of short-term prospects for the global economy. Financial journalists at Reuters (22 December 2023) were also upbeat as the New Year approached. Investors had transferred funds from hedge-funds to other S&P financial options. Nearer to home, China’s economy is likely to grow at close to 5.5 per cent in 2024 according to Forbes Asia (23 November 2023). All these developments make the OECD projections for 2024-25 a trifle dated.
The growth and diversification of the Chinese economy helped to carry Australia and even the US through the GFC more than a decade ago.
These vibes are returning in 2024-25. The Biden Administration seems to be moving towards Win-Win trading and investment links with China again after cooling potential disputes over the Taiwan Strait and those uninhabitable rock outcrops known as the Senkaku/Diaoyu Islands in the Sea of Japan (East Sea).
Australian investment ties under the federal LNP were increasingly with the financial capitals of the older developed world in the US and Britain. Interested readers may wish to check out the innovative presentation of this data by ABS as released on 3 May 2023.
Despite short-term budgetary improvements, Australian public sector finances still present real challenges.
MYEFO 2023 was cautious about unsustainable trends in our public finances. Our financial leaders have spotted these emergent problems.
Loose fiscal policies would worsen the situation in the event of an economic slowdown in the mid-2020s.
Commentators are now expecting a lighter correction in the global economy than our financial leaders anticipated several months ago.
MYEFO 2023 still justified that optimum balance between government spending, public capital works and essential private sector investment that the budget set in place on 9 May 2023. The caution paves the way for new options in the budget ahead in 2024.
LNP overstates Labor’s commitment to public sector spending. Government spending as a share of the national economy peaked at 31.3 per cent of GDP in 2020-21. It is now 25.7 per cent of GDP in MYEFO estimates for 2023-24.
Strategic considerations on the expansion of our investment ties with China is an inherited liability from the Morrison Government. Such assessments were quite alarmist. Our US strategic allies are quite adept at playing games of economic diplomacy with compliant countries like Australia. Economic diplomacy usually trumps strategic policies as national elections approach in Taiwan on 13 January 2024 and the Primaries commencing at home in the US. Very few voters perceive that peaceful days should be marred by strategic scares and preparations for new conflicts.
Each US administration welcomes purchases of US Treasury Bonds by the Chinese Government. The American Enterprise Institute and Heritage Foundation has highlighted the global distribution of Chinese investment to mid-2023 without any negative comments.
US commercial symbols are a regular feature of Chinese streetscapes as noted by Business Insider:
There has been at least one bright spot for Beijing when it comes to foreign investment: American fast-food chains have decided a market of 1.4 billion people is simply too delicious to pass up.
KFC China’s parent company opened its 10,000th restaurant in China this month and aims to have stores within reach of half of China’s population by 2026. McDonald’s is planning to open 3,500 new stores in China over the next four years. And Starbucks invested $220 million in a manufacturing and distribution facility in eastern China, its biggest project outside the U.S.
Media monitoring by Google Bard claims that Chinese financial institutions have invested between $A$1.3-$1.5 trillion in US Treasury Bonds to October 2023. This is the world’s second largest foreign equity in US treasury Bonds after Japan.
Public education campaigns by key federal financial departments and the varied Labor-oriented think-tanks might deliver a broader range of investment options for future discussion in Australia.
US economic diplomacy is less timid. The resources of the US Trade Representative in Washington routinely monitor all free trade agreements with countries like Australia for lapses in commitment to neoliberal values which have been embedded into these global trade and investment agreements.
Australia can do better in advancing our own economic diplomacy. This is one area in which Australian Governments could tune into US policies. Australia is a major global economy with a GDP that is half the size of its British counterpart. Our per capita income here is 40 percent higher than in Britain.
Let the lyrics from the Inner Circle foster real change agendas to confront old colonial cringes as proposed by the Inner Circle Band from Jamaica.
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