What’s in the stew?
Posted: July 02, 2010
In evolutionary terms humans have been on earth a very short time. We have coped with ice ages, floods, wars and disasters and developed technology to improve our lives. In recent times we have learnt to deal with financial and economic turbulence, although at an individual level the loss of a job, wealth or security can be very challenging.
Whilst we may grumble about change, one of our biggest strengths is resilience - the ability to keep going and adapt to a changing environment.
On the financial front we currently live in a period of increased uncertainty. Australia seems to be travelling better than most (primarily on the back of the mining industry) but global events completely out of our control will always be a factor. The future could take any number of paths. It's like a giant bubbling stew where the ingredients keep changing in both quantity and quality.
The world has survived the Global Financial Crisis but many countries, or rather their citizens, will now pay a heavy price and experience a material drop in their standard of living. Greece has been a recent focus of attention with government debt of over 130% of GDP. When a government is forced to cut pensions and public sector wages and raise taxes significantly, the problems are serious. Concerns remain that other European countries may go the same way.
On the flip side we have China's seemingly resilient economy with an insatiable appetite for (our) resources. Keeping a lid on inflation is one of their primary challenges. There are also good economic signals coming out of USA with the manufacturing sector showing the ninth consecutive month of growth, the strongest since 2004 though unemployment is still close to 10%.
The IMF forecasts that the Australian economy will grow by 3% in 2010. Our national debt, at about 60% of GDP, is the lowest amongst other developed countries but it will most likely take a while to bring under control. The direction of Australian Government policy is uncertain with an election due later this year. Recent proposals, such as the mining super tax, still have to pass through both houses of Parliament.
The Australian Government has plenty of facts and recommendations on which to base policy. The Harmer review into adequacy of social security, the Ripoll report into financial services and the Henry report into the tax system await further Government action. The first announcements relating to the Henry report only actioned three out of the 138 recommendations.
The Cooper review into the superannuation system is due in the next two months. Also hanging over the Government's head is the Intergenerational Report which identifies major challenges to retirement, health and aged care policy as our population ages.
It's often said there is no point worrying about things you can't control. It's much better to have a plan based on what you know and review that plan as events unfold. We are reminded of the words of Charles Darwin that we quoted in our spring 2009 newsletter - it's not the fastest or strongest who survive but those who adapt the best to change.