Stop press:
Aussie jobs up by 50k, unemployment falls to 4.8%, participation rate
increases. She’s a strong economy, gentle
readers!

It is no secret that Donald Horne,
the man who described Australia as “the lucky country”, first penned the term in
the 1960s as an ironic jab at an Australia that he thought was still shackled to
its colonialist heritage. However, the recently released OECD Survey of
Australia argues that, at
least economically, Australia is a lucky country, but a
country that has made its own luck and to a large extent is experiencing the
payoffs.

The survey notes
Australia’s impressive growth rate
and success at having remained resilient despite a major drought, a housing boom
and subsequent slump (in the eastern states) and the commodity price boom. The
commodity price boom, admittedly, must be put on the “lucky” side of the ledger,
as the windfall it has produced has boosted Australia’s
terms of trade and national income during a time when other domestic sectors,
such as manufacturing, are struggling. An important challenge, the OECD survey
states, is how Australia deals with the inevitable
slowdown of commodity price boom.

To position itself best for this
unavoidable event, the OECD states that Australia needs a number of further
reforms – but there are few surprises in their
suggestions.

With regards to fiscal policy, should the downturn occur faster than
expected, the OECD states that the Government should allow “automatic
stabilisers” to work, such as allowing a budget deficit. Conversely, if
the boom is longer than expected, the Government should save the extra
income rather than expand spending. The two labour objectives should be
an expansion of labour supply and an increase in productivity. The OECD
supports the Government’s “Welfare to Work” initiatives and
superannuation changes. The report also notes the relative high level
of reliance on income tax, and states that a way to increase labour
supply is to broaden the tax base.

Although the OECD is supportive of industrial relations reforms, it does note that the compliance costs of the
complex system are high, and that Australia still suffers from our
complicated Federal-States system. Also noted are the infrastructure problems
such as our ports, but it notes that these issues are being worked on. Sounds
to Henry like a straight-A report from the schoolmasters.

Surprisingly omitted from the
report were Australia’s current inflation risks, which is disappointing
considering they are one of Australia’s most pressing economic issues at present,
and we could use some direction, if Henry’s is not enough. Henry gives the
OECD a solid B+.

Read more at Henry
Thornton.