Late-2000s recession around the world |
There has been a credit market crisis in the Australian economy since early 2008.[1] The taxation system is currently being reviewed in order to reduce its complexity and increase the tax concessions made for investment income, although it remains uncertain what – if any – financial products will be excluded in the proposed changes.
In July 2008, the National Australia Bank cut a A$850 million bond sale by two thirds following investor flight and opted for a 100 percent write-off on a clutch of "senior strips" of AAA-rated collateralized debt obligations (CDO) worth A$900 million.[2][3][4] Banks began avoiding lending for land, to focus on refinancing existing clients, and small developers held on to their properties as second-tier loan costs (up to $15 million) were, reportedly, unaffordable since February.[5] Housing prices consequently fell in the second quarter for the first time in about three years, restricting consumer confidence to its lowest level in 16-years.[6] High profile casualties of the credit crunch include Allco Finance, MFS, ABC Learning, Babcock & Brown and Centro while numerous other institutions have lost a significant part of their value.[7]
Sources such as the IMF and the Reserve Bank of Australia predict Australia is well positioned to weather the crisis with minimal disruption, sustaining more than 2% GDP growth in 2009 (while many Western nations go into recession). The World Economic Forum recently ranked Australia's banking system the fourth best in the world, while the Australian dollar's 30% drop is seen as a boon for trade, shielding from the crisis, and for helping to slow growth and consumption.[8][9]
Some analysts have predicted the continuing decline of trade in 2009 could put the economy into recession for the first time in 17 years.[10] Unemployment will increase because of slower growth, declining profits and government revenues.[11]
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In order to avoid or cushion the impact of a recession, the Federal Government proposed a A$10.4 billion stimulus package. The package would provide cash payments to those already on government transfer payments. $4.8 billion of this package went to pensioners, carers and war veterans with individuals getting a lump sum of $1,400 and couples getting $2,100. $3.9 billion was to be paid for people who were receiving family tax benefit A and people who were receiving family tax benefit B. $1.5 billion was set aside for the first home grant with it being doubled to $14,000 for existing homes and trebled to $21,000 for newly built homes. Other smaller programs would make up the rest of expenditure.[12] Treasury estimated that it would boost GDP by 1% and UBS chief economist predicted that if all of the stimulus money were spent then it would boost Christmas sales by 30%.[13]
In March 2009, Canberra announced that the Australian economy contracted by 0.5% in the last quarter of 2008, leading to fresh worries of recession.[14] On Wednesday 22 April 2009 it was declared that Australia was to fall into recession by Prime Minister Kevin Rudd.
However on 3 June, the Federal Government announced the GDP data that Australia did not show negative growth for two consecutive quarters, and thus has not officially entered recession, providing an optimistic outlook for the economy.[15] The positive GDP figure was due to an increase in the trades surplus due to an increase in exports and a large decrease in imports. This combined with steady consumption figures to prevent the economy contracting in that quarter.[16]
According to analysts, Australia weathered the financial crisis better than all other major developed countries due to good macro-economic management, a healthy government surplus, a strong, commodities-based economy, good co-ordination between the government and the reserve (central) bank, effective stimulus measures, and a strong banking/financial system with low toxic assets and lower risk lending and investing ventures compared to other nations' economies. OCED quarterly reports on member nations noted these reasons for Australia's economic position and praised the country's officials for saving their economy from recession.
Employment, Unemployment and Participation[17] | ||||||||
Date | Number of people employed ,000s | Number of people unemployed ,000s | Unemployment Rate, % | Participation Rate, % | Seasonally Adjusted Number of people Employed ,000s | seasonally Adjusted number of people unemployed ,000s | Seasonally Adjusted Unemployment Rate, % | Seasonally Adjusted Participation Rate, % |
---|---|---|---|---|---|---|---|---|
March 2009 | 10 794.9 | 611.1 | 5.4 | 65.4 | 10 771.6 | 649.9 | 5.7 | 65.5 |
April 2009 | 10 790.6 | 630.8 | 5.5 | 65.5 | 10 798.9 | 614.6 | 5.4 | 65.4 |