With Australia low export base making price changes clearly

With Australia
tradition of a deficit in the balance of payments the foreign debt is always
going to be present. Though this is the continual state of a deficit is not as
bad as it sounds, with the current foreign debt of 986,699 million this debt is
caused for a various reason in the Australian economy and international economy
which are exogenous.

As an exporter,
Australia is a price taker no matter the current price of our exports we will
continue to sell, this effect is heightened because of Australia low export
base making price changes clearly noticeable in the performance of the wider
economy. Australia for imports is never going to shift because the lack of
substitute in Australia for complex transformed goods and capital goods which
Australia is unable to manufacture at the efficiency countries like China and
Japan can. These factors lead to Australia be in majority of the time have a
foreign debt. Caused by the fact that Australia needs to acquire the remaining
funds to give the balance on trade. This must be funded by borrowing from
foreign suppliers or by having them equity invests in Australian businesses or

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This foreigner owned
money is not free through we must service the debt (paying interest) and the
equity investment in business and property will likely bear dividend and
returns. The returns and dividends paid overseas, lead to less of the interest
and returns they pay to Australian business and investors is called the “net
income deficit”. This process of continual trade deficits and increasing
net debt to foreigners has become that the net income deficit each quarter is
greater than Australia’s trade deficit. Though combine the trade deficit and
net income deficit you get the current account of the balance of payment (BOP).

Though with any deficit
on the current account, the foreign debt will increase and is already at
986,699 million deficits. Having that amount of debt sounds bad but not really.

The debt is growing slower than the economy (GDP) which allows us to continue
our ability to repay it. Though the current account deficit is just the
corresponding part to all the foreign investment injecting into Australia and
causing our economy to grow faster than we could without foreign investment.

This is represented in that Australia invests more annually than we save. The
increasing of the current account deficit is a by-product of the inflow of net
foreign capital which fuels the economy which furthers the ability service the
foreign debt.

This investment direct
foreign investment (FDI) supports Australia to reach its economic potential by
supplying capital to fund new industries and enhance current industries,
increasing infrastructure, productivity, and employment in the process. The
higher growth supported by foreign investment indirectly supports all
Australians by through tax revenues to governments and increasing the resources
available to spend on public goods such as hospitals, schools, roads and other
essential services. FDI has other benefits beyond injecting capital. By
bringing in new businesses with contacts in different industries it opens extra
export opportunities, increasing our general export performance. It also
promotes competition and increased innovation by supplying new technologies and
services to the Australian citizens and market.


Though Foreign
portfolio investment (FPI), on the other hand, is a category of investment
instruments that are easily transferred compared to direct investment, it’s
less secure and doesn’t signify a controlling percentage in an enterprise.

These include investments such as equity in the form of stocks or bonds of a
foreign enterprise which doesn’t necessarily represent a long-term interest.

These types of investment have caused a major issue in the massive inflation of
the property market caused by the influx of foreign investors have caused a
massive spike in the demand for property this has removed a lot of Australian
first home buyers in trouble being forced to pay ever growing rental payments.

Though comparably small in the total foreign investment numbers the increased
prices have caused first home buyer to stay in rental apartments or move
further out of the city which is difficult when most of work opportunities are
in the city.

Even if
the foreign debt is caused by Australia saving-investment gap a structural
factor in the Australian economy and has been medicated by the continues
economic growth Australia has experienced. The debt must be properly managed to
allow for It still to push economic growth rather than hamper it.





















Level of significance
of increasing housing prices have played on the Distribution of wealth?


The distribution of
wealth is a comparison of the wealth of various members or
groups in a society. Australian wealth distribution has become recently changed
with the rapid rise of property in across Australia’s capital cities and
regional areas. This increase in the value of housing has been primarily caused
by the opportunity for investment property from foreign investors and the low
interest rate incentivizing Australian portfolio investments.

The Household Income
and Wealth, Australia, 2015-16 figures from the Australian Bureau of Statistics shows
that older Australians are holding an increasing proportion of Australia’s
wealth, and the housing boom is a major cause for the gap of wealth between the

homes owner who were 65-74-year-olds are on average $480,000
better-off in 2015-16 than homes in the same age bracket 12 years prier. And
Homes owned by 45-54-year-olds are $400,000 better-off. In comparison to homes
owned by 35-44-year-olds are on average are $120,000 better-off and
25-34-year-olds the figure are $40,000.










Figure A Source:

– ABS Survey of Income and Housing  



Rising property prices
are a main cause behind the rapidly increasing wealth of older Australians. Australian Bureau of Statistics (Appendix ABS Residential Property Price
Indexes: Eight Capital Cities figures show that the medium
housings prices increased by 37% in all the capital cities between 2003-04 and
another rise in 2015-16 along with a rise of 50% in Melbourne. The rapid increase
wasn’t exclusive to the capitals, prices also rose in regional areas.

The statistics form the Australian Bureau of
Statistics (Household Income and Wealth, Australia, 2015-16).

homes owned by someone 75 years or older, superior property wealth contributed on
average three-quarters of the rise in their total net wealth. For homes owned
by 65-74-year-olds and 55-64-year-olds, property sourced about half of the
total rise in net wealth.

Unfortunately for the younger
Australians it’s a different case.

Larger mortgages mostly
offset the increase in property wealth for homes owned by 25-34-year-olds and
35-44-year-olds. Baby Boomers have also used the superannuation investment to
build their wealth. They used tax a plan (Super tax targeting) which offers citizens nearing
retirement, the ability to place large sums with a tax reduction into their superannuation
just before retirement.

Medium superannuation wealth
increased in a 12-year period by $230,000 for homes owner who were 65-74-year-olds,
and by more than $150,000 homes owner who
were 55-64-year-olds. As property prices have increased,
more young Australians have been locked out of home ownership.

Figure A source:

Source: ABS Census



home ownership among households owned by 25-34-year-olds fell
between 1981-2016, from 60% to 45%. For home ownership by 35-44-year-olds the
fall was from 75% to 62%. Home ownership rates are also falling for

Some of this effect is
the effect of the changing social environment: Australians are waiting until
later in life before starting work, forming long-term relationships, and having
children. Most Australians still want to own their own home, so it is
reasonable to assume that higher housing prices are the biggest cause of
lower ownership rates.

The wealth
divide between generations can easily lead to a more severe divide within
generations. For many young Australian, the only way that they can reasonably
afford their first house is with help assist’s from “the bank of mum and dad”.

house prices have increased, more first home buyers are receiving support from
family and friends to have a “Foot in the property market door”. The strong rise
in the wealth of the older generations, combined with the shrinking of the
family size from 1960 to 2000, will cause the rise in inheritances because of
the fewer benefactors.

Inheritances into small
family households which are already wealthy will lead the continuation of wealth,
and since property ownership is more likely to come about by
transferred through inheritance than purchase, and more likely again among
those who receive larger inheritances.

Australia is becoming
wealthier, but much of this new wealth is focused in the hands of older generations. The trend is clear: unless
something changes in the wealth concertation, the young will fall further
behind and inequality will get worse.

The rising housing
prices have played an obvious role in the worsting of the distribution of
wealth. The limited residential supply of pre-built houses; combined with the
low interest rate incentivising the wealthy to invest in property and the clear
opportunity for foreign investment has resulted in the property market becoming
impregnatable for any that don’t already posses a large amount of wealth or
have financial support from mum and dad.