The Australian population is growing at a rapid rate and by 2050, there will be an additional 50 to 100 million people living in major cities. The number of people will increase, but the property prices won’t. Landowners may expect up to $84 billion more in financial returns. Australia’s housing crisis has been one of its biggest challenges over the last 15 years, and this will continue to be a big economic problem for generations.
Climate change will be Australia’s number-one priority
The climate crisis has already changed the world. Scientists have been using model-based climate scenarios to help decision-makers understand the impacts on the future climate. Australia is a party to the Paris Agreement and the Kyoto Protocol, and has been a party to international climate agreements since 1992. The Paris Agreement aims to limit the increase of global temperature to 1.5degC or below. Signatories of the agreement are required to submit climate plans, called Nationally Determined Contributions.
The new prime minister of Australia has already mentioned climate change four times in his maiden speech. He wanted to show the world what a new Australia looks like after a long history of inaction. Speaking at the Quad meeting in Tokyo, Albanese mentioned climate change and security. In his speech, he focused on the need to build resilience, adapt to climate change, and reduce emissions.
Australian companies need to adopt a different mentality to survive and prosper in periods of upheaval
The year 2021 will be a critical year for Australian companies, setting the tone for the next decade. Australian companies have historically performed well, with a relatively stable economy and shareholder returns, and they may have underestimated the impact of a decade of global upheaval. A key measure of a company’s strategy is economic profit, or returns after cost of capital. Yet, Australian companies’ economic profit has decreased by 71 percent over the past decade, whereas the United States saw its economic profit increase by only 14 percent.
This decline in economic profit can be attributed to a slower rate of reinvention. From 2009 to 2019, Australian companies grew at a roughly five-percent CAGR, but their returns on invested capital (ROI) were only two percentage points lower than their US peers. In this period, US companies saw their margins grow by two percentage points, while Australian companies saw theirs stay flat.
Australia’s economy is vulnerable to external shocks
One of the most significant forces driving economic change is declining spending per person. This is accompanied by a downward trend in wages, a development that has already been confirmed by the RBA. Changes in global prices and demand can also cause economic shocks in Australia, particularly those affecting international business. Additionally, domestic factors can affect business performance, leading to more job losses and reduced innovation. In these circumstances, a government’s response to external shocks is vital to avoid significant damage.
Japan’s Pacific conquests had a greater financial impact on the Australian economy than the COVID-19 crisis did. The Australian government expects an underlying budget deficit of $85.8 billion in 2019/20 and $184.5 billion in 2020/21. Half of the spending support will come from wage subsidies, investment incentives and household income support. The rest of the budget will likely come from cash flow support to businesses.
Australia’s population will increase by 50-100% by 2050
If current trends continue, Australia’s population will increase by 50-105% by 2050. Australia has the world’s 12th-largest population, but is the 55th most populated nation. With its uninhabitable deserts and bone-dry bush, Australia is also one of the most vulnerable nations to climate change. Despite this, Australia’s population is increasing, mainly due to immigration.
With the population increasing, the burden on the government to provide enough resources to meet the rising demand, the government has signaled it will reduce migration intake, citing congestion as a major concern. Australia’s population would remain at around 25 million in 2050, but Victoria and New South Wales would each have populations of seven to eight million. In 2050, this would create a severe housing affordability crisis, making the country a less attractive place to live.
Australia’s coal mining industry will be hard to the left on climate
In a country where the government is threatening to ban coal mining, Australia’s coal industry is cashing in on developing world demand and has pledged to go carbon-neutral by 2050. The government’s plan, however, is speculative, short on details and long on speculative technology. And it promises not to affect coal exports.
Nevertheless, the mining industry has long driven the nation’s economy. In a survey by the Sydney Morning Herald, only one-third of Australians believed coal power should be phased out within a decade. In short, Australia’s coal industry might be hard to give up despite the majority of the population’s desire for climate action. That said, the current government is a fossil fuel-friendly country, which means the coal mining industry will be hard to the left on climate in the next decade.