By Chow Wei Cheng
You can hardly pick up a paper or watch the news without being bombarded with stories on the terrible state of Australia's current account deficit. The message is that we are all spending beyond our means, and therefore the government has to bring in some new measure to curb spending and increase savings.
The current account is a measure of Australia's trade with overseas. The current account is a component of the balance of payments, which indicates the flows of transactions between Australia and other countries. The other component is the capital account. The capital account shows all the monetary flows between Australia and overseas.
The current account subtracts all the payments from Australia to overseas for imports and services from the receipts from overseas derived from exports and services. The capital account shows the borrowings and investments into and out of Australia.
There is a general relationship between the current and capital accounts. If the current account is in deficit (flows out greater than flows in), this is usually funded by borrowings from overseas. Domestic sources of finance such as savings, retained profits and government surpluses in Australia are traditionally not enough to cover the deficit, mostly because Australia's exports are commodities which command lower prices than imported manufactured goods and capital goods.
Government and business alarm bells have been sounding as Australia's monthly current account deficit reached a near all time high of $2.7 billion. But what does this actually mean?
A deficit means Australia (both capitalists and household consumers) buys more from overseas capitalists than from Australian ones, and so the relative profitability of the Australian capitalist suffers. This being the case, should we be defending Australian capitalists against overseas ones?
A common misconception is that if Australian business suffers, jobs will be lost, wealth will not be held inside Australia and will instead go overseas.
But capitalists from any country have only one motive — to make profits — and they will seek the cheapest labour regardless of where that labour lives. These same Australian capitalists are expanding overseas in search of cheap labour in Asia. Secondly, where wealth is created and is kept within Australia, it is not shared by the majority of people who create the wealth in the first instance — working people. If history is anything to go on, the richer will continue to get richer at the expense of the rest.
There are many reasons why a current account deficit exists, but we can note that the Australian dollar has declined compared to currencies of Australia's major trading partners, most notably the yen. This has the effect of increasing the price of imports and decreasing the value of exports. In addition, tariffs have been declining, which encourages imports. Growth rates have also been high in Australia compared to trading partners such as Japan and the US, which also increases demand for imports relative to overseas demand for Australian exports.
The Labor government's traditional response to a current account deficit has been to wind down demand for imports by wage restraint through the Accord and high interest rates. As well, the ALP aims to reduce government expenditure by slashing budgets and privatising assets to reduce the component of demand attributed to the government and turn the government into a net lender rather than a borrower. Today the response focuses on increasing national savings through increasing compulsory superannuation.
The government expects that these savings will mean more funds available for capitalists to invest (channelled through the super funds and banks) and so less reliance on foreign debt. Eventually, these investments might increase their ability to export and compete with overseas capitalists. So despite all the talk about providing for workers' futures, the measures are designed to aid Australian capitalists.
The money and goods measured by the current and capital accounts are overwhelmingly the property of capitalists, not working people. Working people gain nothing from these flows, so there is no reason for us to sacrifice in order to try to influence them.