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Economic gloom for Australia?

By Murray Hunter - posted Friday, 31 July 2015


On many levels, Australia is one of the most expensive places in the world to live in. With over 750,000 people unemployed and rising, a potential bout of inflation through the depreciating Australian dollar and a tax increase inevitable later this year, this should be of major concern to many people.

On the positive side, the currency's decreasing value would help create an environment for potential new export industries if the economy could again become competitive in the world market. The hope is the Australian export base would diversify from minerals and expand to include innovation driven products.

A lower cost of living, especially translated into a lower cost base for entrepreneurial start-ups, might help increase economic activity. This is needed if a recession is to be avoided in the near future. Unemployed can also be gainfully put back to work.

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So what is causing Australia's high cost of living and how can the impact of this be lessened to improve Australia's competitiveness?

The previously overvalued currency made Australia expensive for tourists. That same exchange rate made imports cheap as well. However, what is important is how much a currency unit can really purchase in terms of purchasing power parity. A dollar gets you nowhere. Just look at the price of a cup of coffee, or a Coke or a public transport ticket. Go to a country like Malaysia and RM1, in many places buys a cup of coffee (just), or a light meal. Thus the PPP of the Australian dollar is a true indication of how high the cost of living really is.

This standing comes from many factors. Urbanization has many costs associated with it. Business premise rentals are high. Public transport is expensive. Tolls are expensive, as well as local government rates, as are general operating costs including wages.

Add to urbanization the cost of imported goods and the practice of multinational companies geo-blocking Australia as a high-price market. This generally makes many branded goods more expensive than other countries. A can of Coca-Cola costs only A$0.60 in a corner store in Thailand or Malaysia. Logistics costs are high. It costs just as much to ship something around Australia, given infrastructure problems, as it does to ship the same good around the world.

The retail sector in Australia is not competitive. Four organizations, of which two control 70 percent, dominate the grocery market. This goes for most sectors. There are four major banks, two department store chains, and no more than a handful of discount store chains.

The Australian lifestyle is a travelling one. But the costs of travel by car or public transport, parking, tolls, and any outside food and beverages all start to add up. A family day at the movies could cost hundreds of dollars. Tickets to an AFL football match start at A$25. Even a ticket to the Royal Melbourne Zoo starts at A$15.80 for a child and A$31.60 for an adult. Cigarettes and beer in Australia are among the most expensive in the world. People are now paying for things they didn't pay for in a do-it-yourself world, like childcare, gardening and housekeeping.

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Finally, state governments have promoted gaming as major recreation through the granting of casino and jackpot machine licenses to over 7,000 premises. As a result, gambling losses amount to A$1,144 per person.

Underlying Australia's structural problems is the small population base. A country of only 23 million is not considered a large enough market for most multinationals to manufacture in. It's very hard to develop economies of scale in high volume manufacturing within Australia. The relatively high cost of outbound shipping deters the thought of Australia being a manufacturing base.

Historically Australian wages have been very high. Weekend and overtime pay are double customary pay rates, and employees are paid extra during holidays. In addition to wages, businesses must pay a payroll tax, a tax on employment. Many other expenses involve keeping employment and salary records.

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About the Author

Murray Hunter is an associate professor at the University Malaysia Perlis.

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