By Michael Perry and James Grubel/Sydney/Canberra
Australia’s economy may be the envy of debt-laden Europe and the US but the rising cost of living in Australia, with Sydney alone one of the world’s most expensive cities, is a brewing political storm for Prime Minister Julia Gillard.The resource-driven economy has not missed a beat for more than a decade due to China’s insatiable appetite for its iron ore and coal. Its debt is miniscule, employment is at full capacity and the housing market has soared in the past decade.But Australia has almost become too successful.There is a mood of pessimism stretching across Australia as many voters, outside the narrow mining sector, struggle to cope with rising prices of every day goods and services, like food, power, and rising mortgage rates.“We are, at the moment, mostly unhappy,” Reserve Bank of Australia Governor Glenn Stevens said last week.“Measures of confidence are down and there is an evident sense of caution among households and firms. It seems to have intensified over the past few months.”With her government’s support at near record lows, Gillard is so unpopular her minority government would be thrown from office if an election were held. Voters are not listening to her message that the economy is strong and have given a thumbs-down to her recently unveiled carbon and mining tax.“The level of uncertainty at the moment is very high,” said Australian National University political analyst Rick Kuhn.“The reassurances that voters are getting from the government is unconvincing.”Nurses, government workers, Qantas airline staff and miners have all staged strikes or protests in the last month to demand better pay and working conditions to combat inflation.Australia’s headline measure of consumer prices rose alarmingly in the last quarter and is now up 3.6% for the year, the fastest pace since late 2008, with banana prices up a massive 470% over six months due to floods and a cyclone.The inflation data released last week lifted the Australian dollar to a 29-year peak, further squeezing Australian export competitiveness and the tourism sector.Inflation has created stress in Australia’s mortgage belts - residential suburbs where many families with housing loans live and whose votes are crucial to win an election. Australia’s biggest selling daily newspaper, Sydney’s The Daily Telegraph, has run a campaign for months highlighting the two-speed economy, where the mining sector is booming but other sectors like retail and construction are struggling, and how voters are angry and blaming the government.“Already in 60 days of arrears on our home loan, how much more can we take. The bills are pilling up, rates have gone up just for collecting garbage, electricity, gas and water...,” Sydney resident Lynda Shaw told the newspaper.In a country where home ownership is seen as almost a God-given right, rising interest rates are a political death-knell.On Wednesday, the paper thanked the RBA on its front page for not raising rates above the current 4.75% this week. But worried about inflation, many economists think the RBA will tighten monetary policy later in the year, although markets are betting on a global downturn which may force a cut.Young adult radio listeners complain on phone-in programmes that they will never achieve the “great Australian dream” of owning their own home, with housing unaffordability at record levels.Australia’s median capital city free-standing house prices grew 147% to A$417,000 ($452,000) from 2001 to 2011, but median after-tax income rose 50% to A$57,000, pushing the price to income ratio to a severely unaffordable 7.3.Rents have also hit new highs due to housing shortages.A key survey of consumer confidence slid sharply to a two-year low in July. Data on Wednesday showed the slowest retail spending in 50 years and top department store David Jones has slashed its profit forecast. “The Aussie consumer is certainly depressed,” said CommSec economists Craig James.But other data pointed to the two-speed economy, with Australia boasting another healthy trade surplus in June as Chinese demand kept resource export prices sky high.Economists warn Australia must lift productivity in its non-mining sector to ensure economic growth and living standards.“Australia remains ‘The Lucky Country’, but warnings again are mounting that we have traded on our luck for too long,” The Australian national newspaper said in an editorial this week.“Laziness on the back of the China boom will cost us dearly should the global crisis stall the Asian giant’s (China’s) growth.” -Reuters