Accoding to The Australian Financial Review today, over the decade to 2013, Australia racked up $US1 trillion in extra exports from the previous 10 years, thanks largely to China's once-insatiable demand.
"We spent the revenues from the boom as they came in from 2003," said Ross Garnaut, a professor of economics at the University of Melbourne. "That left us high and dry when the Chinese new model of economic growth ended our resources boom."
Future growth and job creation are now dependent on services such as tourism and education, and residential construction fuelled by record-low interest rates that are driving up property prices.
The Australian government's net debt-to-GDP ratio, although deteriorating, is the lowest among the world's 10 largest developed economies, according to data compiled by Bloomberg. That gives it capacity to fund infrastructure spending through bond issuance.
Much of Australia's household wealth is tied up in a $1.9 trillion private pension system, the world's fourth largest, and a national housing market now valued at $5.7 trillion.
Yet households also carry a debt burden of 153.8 per cent of income, the highest on record, and the government is struggling to restore the fiscal position as commodity prices slump and the tax system leaks.
In fiscal 2007, the conservative government in which Abbott was a senior minister had an $80 billion windfall in its budget bottom line, which was spent on measures such as a cash bonus for having a baby, increased payments to families and benefits for pensioners. The rest was distributed via tax cuts. In response, the central bank was forced to raise the cash rate to 7.25 per cent – 5 percentage points above the current level -- in 2008 to prevent an inflation breakout.
Meanwhile, growing urban centres – Australia added 2 million long-term migrants from 2003-2013, increasing the population by a tenth – received almost no new infrastructure. Long stretches of the nation's highways remain single-lane and the railway system has been little changed since the 1960s.
"Sydney needs a new rail connection under its harbour. Melbourne needs a new rail connection under its central business district," said Mark Birrell chairman of Infrastructure Australia. "These are very large projects that ideally would've been planned well before now – and the catch-up period is significant."
After 24 years of growth, the question is whether Australia has had it too good for too long?
The Economist magazine to summarise: "If you look at history, Australia is one of the best managers of adversity the world has seen – and the worst manager of prosperity."
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