In our never ending
pursuit to make relevant use of economic principles, Urban Economics has
overlayed our very own Pint of Lager Index (POLI) with The Economist’s Big Mac
Index (BMI) with some interesting results.
The real standout in terms of
overvalued currencies (and thereby expensive beers and burgers in relative
terms), are the well to do Scandinavian nations including Denmark, Sweden and
Norway as well as currency safe-haven Switzerland. History and previous
releases of the Big Mac Index also reveal that this has been the case for some
time due to a series of factors including government regulation, policy and
stability.
The most extreme anomaly within
the indices is Norway which as we dig deeper provides some insight as to why
the Krone, is adjudicated to be comparatively overvalued when things are held
equal in beer and burger terms and it’s not because their Big Macs are made
with Jarlsberg cheese.
Norway Fast Facts
·
Largest sovereign wealth fund in the world valued
at 3,561 billion Krone ($610b AUD) as at June 31 2012 and growing.
·
High level of state owned petroleum and gas
operations (resource profits are the primary input to the sovereign wealth
fund)
· Europe’s lowest unemployment rate at 3.2%
through 2011 according to the European Union Labour Force Survey Annual (the
next closest was Switzerland at 4.2%)
·
Healthcare is provided free to all citizens of
Norway
·
There are no fees payable by students attending
public universities and colleges in Norway which make up over 90% of higher
education providers.
·
Despite having significant gas and oil reserves,
Norway consistently has higher petrol prices compared to other developed
nations which includes tax of around 65% currently around (AUD) $2.60 per
litre. (Similarly resourced Venezuela costs around 13c for a litre).
Lessons for Australia?
Australia like Norway is resource
rich and has relatively low unemployment. For the most part, this is where the similarities
with Norway’s economy end.
Australia does not have a
sovereign wealth fund although Western Australia on the back of their resources
are starting one, Malcolm Turnbull would like to initiate a national future
fund and Wayne Swan would like to spread the wealth around as regard resources.
The concept is not entirely lost in Australia however, with a federal future
fund set up in 2006 to cover the liability of government superannuation on the
back of the sale of Telstra shares and budget surpluses. This was expanded in
2008 to include nation building initiative funds for infrastructure, education
and health.
The majority of Australia’s
resources are not controlled by the government but by large multinationals such
as Rio Tinto (the only Australian company ethically banned from association
with the Norwegian wealth fund for a poor environmental record in Norway’s
view)
Healthcare in Australia is
steadily transitioning to require more citizens to have private health cover.
The Private Health Insurance Administration Council estimates that there are
around 10.5 million people with health insurance policies or close to 46% of
the population.
Higher education costs in
Australia are constantly under debate however, no comparison can be drawn to
Norway’s free and accessible system.
So while our overlay of beer and burgers points to Norway as
being a tough place to have a cheap night out, further investigation reveals
that Norway’s citizens are well placed to enjoy a future free from the
financial difficulties encountered throughout much of Europe. Australia also
has the potential to make better use of our rich resources, but in the
meantime, we’ll enjoy our reasonably priced Big Macs and beer.
