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Print Edition> World
UPDATED: June 9, 2014 NO. 24 JUNE 12, 2014
Finding New Bearings
Australia seeks to kickstart growth by teaming up with China in the fields of services, investment and agribusiness
By Kerry Brown

LANGUAGE LEARNERS: Chinese teachers give a Mandarin lesson at a primary school in Melbourne on March 17 (XU YANYAN)

Australian Prime Minister Tony Abbott's visit to China in early April, his first since being elected to office last September, was widely seen as a success. While there was no signing of the long-awaited free trade agreement, nor was there much clarity about what the two countries would talk about in their high-level dialogue set up during the visit of his predecessor Julia Gillard a year before, there were at least signs that negotiations were moving forward, and the timetable he had set himself for having something in place by the end of the year looks on track. But the cooperation on the complex ongoing hunt for the missing Malaysia Airlines MH370 showed that even in sensitive operations like this the two countries can work together, and that in the end is the more important outcome.

Tightening belts

Back in Australia, however, things have not gone well for the prime minister, who rules at the head of a national coalition. The budget, announced in mid-May, came like a sharp gust of unexpected cold air on a sunny day. Austerity has been the default for the rest of the world, from Europe to America. But Australia, with almost a quarter century of good growth, is unique in escaping the woes of 2008 and 2009, and being able to motor forward with 3-4 percent growth. The consensus on the reasons for this is simple: China. Being a major commodities supplier to China meant that the fiscal stimulus package that kept things positive by China's Central Government during the worst of the economic downturn in 2008 when overseas export markets collapsed also bailed out Australia.

The environment now has become tougher. Part of this is that in Australia very little of the wealth created during the fat years has been saved. There is a small sovereign fund, but nothing like the vast amounts in the Norwegian or Abu Dhabi ones, or the Chinese for that matter. Australians have lived the good life, with low costs for education and, on the whole, social welfare. It is a society of laudable civic values, one where there is on the whole a classic diamond-shaped social structure with a large, urban middle class, a tiny elite of the super wealthy on the top, and a group of less well off at the bottom. The vast majority are in the middle.

Abbott made clear in the messages sent out before the budget that the current levels of government spending were unsustainable. Growth is falling. There is nothing like a recession on the cards immediately, and a generation has grown up with no memory at all of the last bad downturn in the early 1990s. But the hint of austerity similar to that which occurred in Europe four years ago is in the air. Public debt is rising, and the outgoings of government at state and federal levels are creeping up. For these reasons, Abbott and his Treasurer, Joe Hockey, constructed a "tightening-our-belts" budget, in which, among other things, taxes were raised for those earning in the top bracket, healthcare costs for some services were introduced and, most contentious of all, university tuition fees for students raised. This has not gone down well.

Part of the problem has been that this was not something the prospective government said much about before coming to power in September 2013. On the contrary, promises were made then about not raising these sorts of costs. Abbott has used the explanation that he has been forced to introduce these ideas because of the perilous state in which Gillard and Kevin Rudd left the account books before they left power. But even so, the sharpness of the budget came as a shock, carrying an immediate impact on people's pockets.

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