Hey everyone,
I'm struggling to understand the concept and definition of net primary income and why we are in such a deficit?
My guess is because many countries running a CAS (current account surplus) invest in Australia, this results in an increase in the CAFA surplus, whilst causing income debits from said investment to pay dividends and profits to overseas owners, leading to a decrease in net primary income.
Any help would be great, thanks.
Hmmm yeah what you think is a part of it but here’s my take on it.
Also just so you know Australia has actually returned to a current account surplus is the last quarter after yeaaaars of successive deficits. The reason that we returned to surplus is mostly due to the insanely high TOT which increased credits relative to debts in the BOMT section of the current account. Apart from that, the net primary incomes has, and likely always will run a deficit. This is mainly due to the savings investment gap in Australia, meaning that Australia doesn’t have enough savings to fund its investments. This results in Australians borrowing from overseas, which initially results in credits in the CAFA. However, the interest incurred on these borrowings, as well as revenue earned from investments needs to be payed back overseas, increasing debits relative to credits in the net primary income subsection of the current account, and contributing to a current account deficit