Judaism is a very pragmatic religion, and that pragmatism extends to robust economic management. That naturally flows into the psyche of a Jewish nation, one from which Australia should take more notice.
Further to the recent contrast between Australia and Israel relating to the commemoration of national identity, it is also interesting to contrast the economies of the two countries. One is Australia, a lucky country, whose economic luck may one day run dry. The other is Israel, the Start Up Nation, that has created a trade market to deliver the fundamentals for sustained economic growth.
In a week that the Australian Government will deliver a budget surplus forecast, on the back of an interest rates cut, Australia is starting to crack at the seams due to cost of living pressures. Historically when the Reserve Bank has devalued the cash lending rate by half a percent basis point, the Australian Dollar has significantly devalued. On this occasion the Australian dollar is unable to slide back to parity against the US Dollar. This is due in part to the basket-case status of the European and US economies, but also due to the contemporary nature of the Australian lending market (which now only sources 25% of its funds for lending from the Reserve). The Australian Dollar is still artificially high, with the Government now suddenly discovering that it has no way to force it down. This has placed extra pressure on the tax receipts for the Federal Budget.
Trying to solve a debt problem by lowering the cost of debt is not a smart economic manoeuvre at this time. This is especially so as the manufacturing and primary production industries in Australia have been effectively terminated. The resources sector brings Australia its prosperity, but taxing this, and every other productive element of the economy to the point that there is no incentive to create wealth is a slow form of fiscal suicide. Australian tax receipts are coming down because people have less money to spend, therefore businesses are producing less and not profitable. Retail is sick, industry is struggling, and Government is force feeding the vicious cycle instead of trying to reverse it. Australia struggles to see the true impact of its current economic decline because the sheer proportionate strength of economic data relating to the resources sector eclipses the performance of the balance of the economy.
Both sides of politics in Australia have recently cited “middle class welfare” as a luxury that cannot be afforded for future generations. Yet the election cycle continues to be peppered by policy bribes that are designed not so much as to redistribute wealth as they are to buy votes. How ironic it will look this week to observe a Labour Government engage a Liberal philosophy in order to project a national income and expenditure statement that shows its net bottom line in black ink.
A look at the Israeli economy, no less plagued by current political instability than Australia, delivers a marked economic contrast at every juncture.
The Australian Dollar, has a slower long term appreciation against the Israeli shekel than it does against the US Dollar. Ten years ago your Australian Dollar would buy you 55 American Cents, and about 2.6 Shekels. Today, that same Australian Dollar buys a touch over one US Dollar, and a touch under 4 Shekels.
Tracking the history of the cross rates is an interesting exercise. So too is the tracking of longterm growth of GDP per captia (Australia edges out Israel), and the balance of trade. Israel had a net trade of goods and services in 2010 of $US4.23 billion driven by hi-tech. By comparison, Australia was $US15.2 billion, driven by the export of raw materials. With this in mind, it is a staggering statistic to consider that the real growth in GDP for Israel is at 4.6% and for Australia it is 2.7%.
The economy of Israel needs resilience. It has defence, infrastructure and social spending requirements that are far more pressing and strained than those of Australia and need to be serviced by a population a third the size of Australia. Israel spends 8% of its National GDP on Defence. Yet Israel meets this expense through its export receipts, through the dividends of venture capital into R&D, through innovation and technological development, and through sustainable development.
Australia has the economic fundamentals in the form of natural resources that allows it to outperform Israel and many other nations, yet it is squandering its current opportunities for growth through poor fiscal policy. Israel on the other had has political and territorial constraints that leaves innovation and ingenuity as its main asset to power its economic growth. Against all conceivable odds it is flourishing.
I hold little hope for an inspiring Federal Government budget from Canberra this week, taking issue with a number of revenue and expenditure decisions. Not the least of these is that Australian foreign aid will continue to flow via Government agencies to Palestinian organisations that aid and abet terrorism, denounce their obligations, and kill Jews.
I only hope that the economic policy developers of Australia research and learn from the experience of Israel, and rebuild our economy not just on the basis of knowledge, but also on the basis of industry, production, trade, and incentive driven tax regimes that reward performance as opposed to discouraging business.