The sharp increase in the dollar now underway is boosting the buying power of every dollar we have. If you want proof, go on line and check out US dollar prices. The numbers quoted are now identical to those we would have to pay in Australian dollars (before postage and duties where appropriate). Up until now we have had to pay extra. Our money now literally buys more.
If this is making you feel uneasy because the wealth seems unearned, lighten up. When our dollar would buy less than half of what it does now (US47.75 in 2001) we accepted the impoverishment with grace.
And our new buying power is earned. This year the world iron ore price will be twice what it was last year. The price of coking coal will climb 60 per cent. Our miners are shifting more of the stuff as well, meaning the buyers (often in China) need to swap a lot more of their own currency into our currency to complete the transaction, pushing up the price of our dollar and making even those of us who don't mine better off.
Movements in the value of the dollar are the chief means by which the increased wealth generated by mining is spread throughout the nation.... There are other means, taxation and royalties among them. When the former Prime Minister tired to boost the tax on mining to maintain our share of the bonanza he set off a chain of events which cost him his job. Dividends and share prices are also spreading the wealth, as are the jobs created servicing the mining industry in mining states and in far-flung locations in apparently unrelated industries.
But the main way that a boost in export income spreads throughout the nation is by increasing the value of the dollar. Think of it as automatic socialism if you like - spreading the gains (just as lower dollar helps spread the losses when our export earnings fall).
What about the losers, you are entitled to ask. I have been asked that in every decade since the dollar was floated. And it gets less of a concern as time goes on.
The losers are traditionally said to be Australia's manufacturers, people who compete with imports to sell what they make or try to sell their products overseas. Of course in a direct sense manufacturers benefit from the higher dollar, as we all do. Every dollar a manufacturer earns, every dollar a manufacturer has already saved, buys more. But in the same way as having a higher wage might put a job seeker at a disadvantage when it comes to getting or keeping a job, suddenly charging a higher price when expressed in foreign dollars will make it harder to sell your product. At home you will be competing a against suddenly more affordable imports.
It's less of concern than it was in part because there's less manufacturing than there was. Most of the Australian textile and clothing firms that used to compete with overseas suppliers have shut up shop. Mitsubishi has stopped making Australian cars.
And the manufacturers that are still here are increasingly importers as well as exporters. Holden imports parts for the cars it sells here and exports. Many firms are now so integrated across borders it is hard to tell whether they export, import, or just produce.
In parliament yesterday Treasurer Wayne Swan rattled off the usual list of supposed victims of the higher dollar, "trade exposed industries such as tourism, manufacturing, agriculture and education finding it tougher to compete in global markets".
He can scratch much of agriculture. Official forecasts have the global wheat price up 20 per cent this year. The volume of wheat leaving the country will be up 33 per cent. The global beef price will climb 5 per cent, the global wool price 2 per cent. Agriculture is likely to join mining as one of the causes of the higher dollar in the year ahead rather than languish as one of its victims.
Education will do very badly. But it was set to do badly anyway. Bad providers of education have damaged the brand. The higher dollar will make the poor service the industry provides to overseas customers all the more apparent.
Other industries will be hit without just cause. Broadly anyone who sells a service without a significant import component will find their product less attractive. Tourism providers are a good example. (Although not the international airlines. We left the country an extraordinary 600,000 times in August, up 13 per cent on the year before.) Artisans and computer programmers are other examples.
Australians making musical instruments or software for example will find themselves undercut. Unless they cut their prices. I am not being flippant. No-one likes to cut their prices (except smart firms such as Coles and Aldi who have discovered there's money it.)
But quoting a constant US dollar price on a website is one way to do it with dignity. Another way is to do it knowing that although you are charging fewer Australian dollars each is worth more.
Trying to stop the dollar climbing - trying to stop Australians becoming more wealthy in a mining boom - is next to impossible.
But if you want to try, Norway points the way. It imposes a petroleum super profits tax of 50 per cent and stores the loot offshore where it can't push up the currency.
It has succeeded in not giving itself a pay rise.
Published in today's Age
Related Posts
. Log on and get out your card - we touched US$1.0002
. The Aussie since the float - our wild ride
. The value of the dollar drives tourism?
