Australia’s tax revenue forecast dives A$33bn in 10 weeks on China slowdown

AFRHow has your company reacted to the clear signals from China’s new leadership that they intend to take the economy on a new path?

Has it updated its existing contingency plan, and warned employees and shareholders that things may get very tough for a few years?  If not, why not?  Even companies who don’t trade directly with China will likely find competition increasing, as other companies try to replace lost China sales elsewhere.

There is certainly little doubt that a major slowdown is now underway.  Last Friday, Australia’s Labor government announced it was reducing expected tax revenues by A$33bn (US$30bn) – only 10 weeks after having published its original estimates.  Yet as co-author John Richardson notes in this excellent letter to the Australian Financial Review, there is simply no excuse for this terrible mistake.

Please ask your CEO and business leaders how your company is placed on this critical issue.  Are they as ready as possible for the slowdown?

Dear Sir

The news that Labor has had to write down $33bn in tax receipts in the space of just ten weeks serves as a very good illustration of how so many governments, financial institutions, banks and companies have got China so badly wrong.

Just a few months ago, the wishful thinkers easily outweighed the realists, who had been warning for years that China’s deep structural problems threatened a severe economic slowdown. In Chapter 6 of our eBook, Boom, Gloom & The New Normal, published 18 months ago, we highlighted the risks ahead.  One wonders who has been advising Labor about outcomes for China?

Could its advisers have included financial institutions, such as the International Monetary Fund, which are constrained for political reasons in what they can say about China? If they tell the truth, they run the risk of being denied access to data by government agencies – and of falling out of favour with senior politicians.  As for the investment banks, selling a one-dimensional China success story has served them well financially for many years.

The Labor Party and the Coalition need to have a credible plan for Australia if China’s GDP growth falls to as little as 3-4% over the next decade – one quite possible scenario.  Perhaps a public debate on this subject during the General Election campaign would be a step in the right direction. 

John Richardson

Perth, W Australia

About Paul Hodges

Paul Hodges is Chairman of International eChem, trusted commercial advisers to the global chemical industry. The aim of this blog is to share ideas about the influences that may shape the chemical industry over the next 12 – 18 months. It will try to look behind today’s headlines, to understand what may happen next in important issues such oil prices, economic growth and the environment. We may also have some fun, investigating a few of the more offbeat events that take place from time to time. Please do join me and share your thoughts. Between us, we will hopefully develop useful insights into the key factors that will drive the industry's future performance.

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