Two-speed economy

Being in my line of business, I get to see certain factors of the economy playing out in real terms.

I get to see where people are hurting and where things are good. So it came as surprise to me this week when a Sydney newspaper columnist claimed that the two-speed economy in Australia wasn't real. The two-speed economy has been so-named to cover the situation in which the mining boom creates massive wealth and employment while the rest of the economy recovers from the effects of the GFC.

To make matters worse, the booming miners create inflationary pressures and these must be dampened by the Reserve Bank raising interest rates for the rest of Australia. Hence two speeds: one is flat and suffering under rising interest rates; the other is booming and export-focused. There are enough facts and figures for the economists and columnists to argue about this, and even to claim - as the newspaper columnist did - that everyone is better off having a booming resources sector. But from my perspective I have not seen a time when business owners and householders have worked so hard just to stay where they are. I'm seeing people taking second jobs, mums going back to work, businesses doing more with less.

Interest rates have been going up in the past two years and they will go up again. Electricity is going up and the powers that be in Canberra want to put another tax on petrol, to join the others that are there already. It was revealed last week that there are 700,000 'arrangement's with the ATO right now for previous years' unpaid taxes. That included 260,000 business owners. Given that small business employs 50 percent of Australia's work force, this is a serious situation.

There is clearly a two-speed economy operating, and if the politicians and economists could be bothered talking to real business owners, they'd get that straight pretty quickly. The question is what can be done about it. The idea of slapping 'super taxes' on entire industries sounds punitive and not very constructive. You have to wonder about people who think the solution to every problem is to put more taxes on those who are paying a stack of them already.

Unfortunately, business owners have always known how to handle these tough times and they're doing it right now, judging by the fact that the savings rate is going up while credit is flat. When interest rates are up and confidence low, business owners do what they have always done. They ask their families to tighten their belts, and then they all tough it out, waiting for better times.