Facing Up to Australia’s Lost Competitiveness

Australia faces difficult times. The budget is out of control and large parts of industry have become uncompetitive, to the point where many large mining projects are being cancelled. We need a concentrated effort to restore the federal government’s fiscal situation. We also need to reduce costs as measured in foreign currency, which will have to happen through some combination of productivity increases and a lower dollar without flow-through increases in domestic wages and prices.

The mining boom has driven the Australian dollar well beyond any sustainable level. But domestic costs have also increased beyond costs elsewhere, and recent calculations by Professor Ross Garnaut have demonstrated what I call “double digit disequilibrium” in our cost structure relative to competitors.

Whether Australia can avoid a serious recession depends on policies from here and, in my view, how government handles communication with the Australian people and the response of businesses, unions and…