Welcome to the jungle
by Anna Pha The US is in recession, Japan is in recession and European economies are contracting as well. So where does Australia stand in all of this? If you believe the Federal Treasurer Peter Costello then despite the grim international outlook "the domestic economy is very strong". The Reserve Bank is a little more cautious in its estimation of the situation, having last week reduced the official interest rate by another quarter of a percent. This brings the total interest rate reduction since last February to two percent. The aim of the reduction in interest rates is to try and counter contractionary influences on the economy by encouraging people to spend more on goods and services. Growth in the economy over the last 12 months has been underpinned by a boom in the housing construction industry which is unlikely to be sustained for much longer. Behind Australia's growth figures hides the grim reality ordinary working people face on a day to day basis. Economic analysts Dun and Bradstreet released figures last week showing household debt in Australia as having reached an all time high in June this year. Personal bankruptcies rose almost 30 per cent over the last 12 months and credit card debt climbed 20 per cent. There is a strong link between the personal bankruptcies and mounting personal debts, which become unpayable, particularly by those people who are laid off or cannot get enough hours of work to pay their bills. Banks have encouraged the use of credit cards through their various frequent flyer and other reward systems. They even send card holders letters asking them to increase their credit limits, knowing full well that many of these card holders may not have the ability to repay such debts. Most of the banks have failed even to pass on the small cuts in the official interest rates to credit card holders. While workers' and pensioners' savings may, if they are lucky, be bringing in one per cent or two or three per cent, they are paying interest rates of 10 to 14.5 per cent. In the case of ANZ's Qantas Telstra Visa card, the rate is 17.5 percent, plus an annual fee of $60! Christmas will no doubt see more families in difficulty as their credit card debts mount and the banks continue to rake in massive amounts of interest and fees. Reserve Bank Governor Ian Macfarlane raised concerns about the danger of a fall in domestic spending. Macfarlane warned businesses of the dangers involved in responding to a decline in earnings by laying off workers. "This practice is no doubt designed to please investors and therefore to prop up the company's share price", he said. "While the practice may help one company when viewed in isolation, it is a serious error to think that companies in general can protect their earnings in this way. "Earnings are meant to decline cyclically in circumstances such as the present because it is impossible to cut costs as fast as revenue is declining. The more the cyclical fall in earnings is resisted in this way, the more it is transferred to employment, and the more pronounced the cycle becomes." Macfarlane is correct. Sacking workers reduces their incomes and leads to a decline in consumption and contraction of the economy. The Federal Government does not appear to understand this. Instead it has announced the formation of a new "razor gang" to plan deep cuts to Federal budget spending. Of course there was no mention of this prior to the elections. The Government claims that this will protect the budget surplus in the face of global recession. While it may protect the surplus, it will certainly deepen the present crisis. The timing of these cuts, along with the planned winding back of the homebuyer rebate, will only worsen the economic recession. Treasurer Peter Costello is doing nothing to rein in the banks and reduce the massive interest rates on credit card debts. His hopes for the international economy to recover and the Australian economy to pull through lie in a "Harry Potter-led recovery". He expects the Harry Potter paraphernalia to make people rush out and spend more money! The problem is that they don't have the money to spend, that is why credit card debt has risen so fast. If the Government were really serious they would be looking at abolishing the GST, which has done so much damage to people, pushing up prices and reducing purchasing power. They would be looking at taking measures to expand public sector spending, not cut it back. Medicare, public education, community services, public housing, public transport, and a great deal of our economic infrastructure are in urgent need of funds. An injection of funds into the public sector would be a good start to creating jobs and hence creating demand. Higher pensions and unemployment benefits would stimulate the economy at the same time as improving the living standards of recipients. A shorter working week without a reduction in pay would assist in the creation of more jobs. Such reforms could be funded by cutting, not increasing as planned, military expenditure, as well as making progressive reforms to the taxation system. The Government's position in relation to the WTO and the liberalisation of trade also works against the Australian people. It prevents the government having control over the economy, being able to plan the type of economy needed and develop and support new industries and new services. Instead of encouraging the employers to take their investment to India because the Indian economy has considerable growth potential, the Australian Government would be better taking measures to salvage the Australian economy which, despite all of the Government's rhetoric, is not immune to the growing global economic crisis. The shaky telecommunications sector with its bankruptcies, receiverships, mass lay-offs, is indicative of the general direction of the whole economy. We are not here seeing the collapse of the system in one shuddering crash. Instead we are witnessing a process in which the most troubled and unstable sections are either being killed off by "competition" or are collapsing from the weight of outright greedy speculation. It's the law of the jungle. Of course, workers pay for all this with their jobs and a shrinking disposable income in the face of a rising cost of living. The likes of Jodie Rich and the Packers and Murdochs take leave of disasters like OneTel in their Rolls Royce limos and private jets. After all it's their jungle, and Peter Costello's job is to ensure it stays that way.