Article by Joe Zabar, as published in Eureka Street
The latest National Accounts figures show that Australia is officially in recession, with a massive 7 per cent decline in GDP for the June quarter. While not exactly surprising, it has the Morrison Government rightly concerned.
The havoc COVID-19 has wreaked on our economy has been less damaging than for some other countries. While international comparisons may help us feel better about our circumstances, the reality is that Australia’s economy is in trouble and will need more than economic first aid through measures like JobKeeper to get us back on track to recovery.
Australia’s average annual GDP growth has been in the range of 2 to 3 per cent over the last decade. This could be described, at best, as modest. COVID-19 has delivered Australia an annual GDP rate for the financial year just ended of minus 6.3 per cent.
The magnitude is there for all to see. We had a lacklustre economy before COVID-19; now we have one that is in real trouble.
The upcoming Commonwealth Budget will be an opportunity for the Government to lay out its agenda for Australia’s economic recovery. Business lobbyists are working hard to convince the Government they have the answer to Australia’s stalled economy. Unsurprisingly, tax cuts are high on their priority list.
The Australian Chamber of Commerce argues that the October Budget should include bringing forward the personal income tax cuts already legislated and boosting business investment by making permanent the instant asset write-off and accelerated depreciation deduction. It, like the Business Council of Australia, has also called for the Government to move on tax reform and deregulation as a means to lift our economy and create jobs.
‘For wage and salary-earners, confidence is knowing that if you lose your job you can find another and, when you are in between jobs, the welfare payments you receive are sufficient to meet your needs.’
Australia is in desperate need of tax reform, but that is not the same as delivering tax cuts that the business lobby is promoting. Indeed, delivering tax cuts may do very little in stimulating the economy as long as COVID-19 restrictions remain in place.
In the latest National Accounts, the household saving-to-income ratio rose from 6 per cent to 19.8 per cent — the highest since 1974. This was driven by the fall in consumption expenditure. The ABS also noted that gross disposable income rose 2.2 per cent, driven by an historic 41.6 per cent increase in social assistance benefits, due to both an increase in the number of recipients and additional COVID-19 support payments. What the data shows is that we had access to money but we banked it, rather than spent it.
The dramatic rise in savings is not solely as a result of the fall in consumption expenditure. The surge in unemployment and under-employment and the ongoing uncertainty around the spread of COVID-19 has rattled the confidence of Australians. Confidence is the key to stimulating consumption and improved economic activity.
For wage and salary-earners, confidence is knowing that if you lose your job you can find another and, when you are in between jobs, the welfare payments you receive are sufficient to meet your needs. Bringing forward tax cuts might make political sense, but if you want to grow the economy and create jobs, there are better and cheaper ways for the Morrison Government to act.
If confidence is the key to economic recovery, then the Morrison Government should publicly commit to Australia being a full-employment economy, reshaping Australia’s employment policy agenda to one where anyone who wants a job will get a job. We need a signal which promotes hope and commitment to do what is necessary to create jobs in the private sector through improved stimulus measures, but also through innovative job programs that support job creation in the public and charity sectors.
While policy commitments are important, actions are what matter. That will require the Morrison Government to transition its support for the economy from economic first aid to full-throttle investment stimulus.
Part of that investment stimulus should be focused on addressing workforce issues within our care sector, in particular aged care and disability services. COVID-19 has placed extraordinary pressure on service providers in the care sector and has exposed systemic failures in aged care and disability services — for which the Commonwealth Government has primary responsibility. Investing in this sector will be a relatively inexpensive, but critically important.
Addressing funding uncertainty around the equal remuneration order supplementation payment and funding improved pay and conditions for care workers, coupled with the development of a sector workforce plan that offers employees employment stability, are measures the Government could fund in the upcoming Budget.
Similarly, investment in infrastructure should be a high priority. Infrastructure investment needs to be broader than the traditional roads and transport agenda. Construction of social and affordable housing and other small-scale infrastructure projects that deliver economic and social benefits long after the recession has ended should be front of mind for this and future Budgets.
In a recession, security of income matters. It underpins confidence and, in turn, drives economic activity. That will require all governments to invest in the creation of jobs, directly and indirectly. It also requires the Commonwealth to ensure that those who lose their jobs have access to an adequate level of welfare support. And if the urge to stimulate the economy through cash remains a priority, then some temporary increases to Family Tax Benefits will do the trick.
The October Budget will be a test of the Morrison Government’s economic leadership. Their success will be measured by the collective confidence we gain from it. There is a lot riding on it, so let’s hope the Government gets it right.