How is Australia’s economy doing?
On the face of it, Australia is thriving. Unemployment is low, consumer confidence is the highest it’s been in decades, and the rusting factories and dole queues of 15 years ago have been replaced by a housing boom, generous tax cuts, business investment at 15% of GDP, and increased government spending backed by strong economic growth. Supporters of the right-of-centre Liberal Party (which will be seeking a fifth term of office in federal elections that must be held before January) say that Australia is, in short, enjoying a golden period under prime minister John Howard and treasurer Peter Costello.
So what’s the problem?
In the words of Aussie newspaper the Courier Mail last month, “this golden age is also as dry as sticks”. Australia’s worst drought in memory – some say its worst in more than 100 years – is sapping the country’s energy and threatening vital sectors of the economy. Australia is the second-driest continent on Earth after Antarctica, but the past ten years have been particularly bad. Melbourne, for example, enjoys a relatively predictable annual average rainfall of 639mm a year. The last year has been the driest on record, with just half the expected amount. And it’s not a one-off: Melbourne’s rainfall has been below average for the past decade.
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What’s causing the drought?
Australia has suffered periodic droughts throughout history, so is not yet succumbing to wholesale panic. But the fear of many is that the weather in southeastern Australia – which has the continent’s major rivers and the bulk of its population – is on a long-term drying trend due to climate change. That makes the question of how to deal with the lack of rain hugely political. John Howard, a relative climate-change sceptic, is banking on an end to the drought if the country is to achieve its forecast growth rate this year of 3.75%, but economists reckon the ‘big dry’ could see GDP fall by 1%.
How is the country coping?
With reservoirs at a fifth of normal levels, ordinary people are facing severe restrictions on water use. A strict hosepipe ban is in force and all fountains and pools have been turned off and drained. In some cities, people may only water their gardens by bucket between the hours of 4pm and 7pm, three days a week. Children’s paddling pools are banned – and you can’t wash your car except for its windscreen and mirrors. Even keeping clean is trickier – citizens are urged to shower for no more than four minutes. Meanwhile, the capital city, Canberra, surrounded by dried-up scrubland, has been affected in a more immediate way – it’s been overrun by kangaroos looking for parks where there’s still grass to eat.
What about the economic impact?
In the mid-term, the lack of water means all Australians face a surge in electricity prices and sharply rising food prices, as well as more and more water restrictions. But the biggest impact is on farmers, who account for two-thirds of water usage and a quarter of all exports. Australia’s grape harvest has fallen by 30% – that’s 400 million litres of wine. Dairy farm incomes are expected to crash 70% this season, and the national rice harvest has slumped disastrously. Rice crops need to sit under water between October and March – an increasingly controversial use of the nation’s precious water supply. This year the harvest, usually about 1.2 million tonnes (85% of which is sold overseas) came in at less than a tenth of that at 100,000 tonnes.
What about international implications?
Australia exports A$25bn (£10.5bn) worth of agricultural goods each year – both ‘dryland’ (ie, rain-watered) produce such as wheat, beef, wool and dairy, and irrigated crops such as rice and fruit. If Australia faces a dryer future, it will have to keep more of its own food. That will have serious worldwide implications. Already, the drought has sent wheat prices to a ten-year high, meaning higher prices for flour and bread in the Middle East and Africa. Global rice prices have surged, as has the price of skimmed milk, a major food-processing ingredient.
What’s the government’s plan?
Canberra is spending A$680m (£286m) next year on drought assistance for farmers – and has promised more if rains don’t arrive in the coming winter months. It has also announced a A$10bn (£4.2bn) package to rationalise use of water. That includes A$6bn (£2.5bn) on infrastructure projects, such as recycling and desalination plants, and A$3bn (£1.3bn) to buy water rights in the crucial Murray-Darling Basin of south-eastern Australia, where the patchwork of state jurisdictions has made control of water resources complex and difficult. But the longer Australia goes without rain this winter, the more important water will be to the forthcoming election.
Will water lose the election for Howard?
The main political issue for Australia is whether agriculture is an effective use of its dwindling water supply. John Howard cannot afford to alienate the farmers by clamping down on irrigation because his coalition government is relying on their votes to win the national election later this year. To complicate matters, his water minister, Malcolm Turnbull (known in the UK as the ‘Spycatcher’ lawyer 20 years ago) is widely assumed to have prime ministerial ambitions of his own. Turnbull’s opposite number in the more urban-oriented Labor Party (well ahead in the polls and likely to take power later in the year) is also a high-profile and flamboyant figure: he’s Peter Garrett, ex lead singer of the campaigning rock group Midnight Oil.