Oligarch,

I agree that stabilising our current account deficit at about 5% of GDP would be a good idea (not eliminating it, as Arjay proposes), although it does tend to fluctuate over the business cycle, as this is no great cause for concern. I’m not sure that raising the trade balance is the only, or best, route to achieving that – as mentioned above, I think Australia’s persistent low savings rate is the underlying cause of our current account deficits. But trade surpluses would certainly help. At root trade the trade balance and low savings reflect broadly the same issue – the gap between what we produce and what we use.

A current account deficit averaging 5% of GDP should be achievable – historically our current account deficit has fluctuated between 3% and about 6½% of GDP, and in fact it has averaged 5.2% over the past 5 years and 4.5% in the past 10 years.

I agree, too, that the flattening of exports in recent years is puzzling and worrying given the strength of demand and prices for our exports. I’m not sure this has a single cause– maybe infrastructure bottlenecks, long lead times between investment and production in the resource sector (which has been investing heavily), diversion of domestically produced goods from export to domestic markets to meet strong domestic demand, the effects of the drought on agricultural exports – probably a combination of all these and more.

I’m very sure, though, that Arjay’s proposed solution of a return to tariff protectionism will reduce economic welfare and will not make the current account deficit better, indeed could well make it worse.

"The Pressure of Globalisation Could Well be the Source of Voter Disatisfaction"

Doh!

What a no brainer!

i'm a little worried, rj- caught myself agreeing with you.

if we were a rational and just society, we'd have a single 'transaction tax' so everyone supported society in proportion to material benefits received. and we'd have a single tariff too, on money leaving the country. this would preserve a stable currency,and give a way to encourage in-country activities, without giving favors to any particular industry.