by Ebony Bennett
[Originally published in the Canberra Times, 07 March 2020]
It might be time to panic. Not about running out of toilet paper, the real danger is that the Morrison government will undercook its mooted fiscal stimulus package and risk sending Australia into recession to prove an ideological point.
The economy has been weak for years and now the bushfire crisis and coronavirus are about to expose that weakness. Australia is currently participating in a giant economic experiment and all the rhetoric about the Coalition being better “economic managers” is about to be put to the test.
There’s a lot on the line. After almost 30 years of uninterrupted economic growth, the first government to preside over a recession will wear the failure for decades to come. That’s the political fallout. The economic fallout is a lot uglier. Recessions cause people to lose their jobs, through no fault of their own, and many people never recover.
Former treasurer Wayne Swan put it this way: “We knew from the failures of the 1930s and 1990s what recessions do. They destroy lives. They cost people their homes, and their savings, and turn communities into ghost towns,” he said.
“They lead some into lives of misery and even suicide. It takes a decade or more to fully recover. Some communities and families never recover. Not heeding those lessons would have been ignorant – and irresponsible.”
The Coalition derided Labor’s stimulus package during the Global Financial Crisis for being overblown, and crucified Swan for being unable to deliver a budget surplus, even as the global economy contracted.
The surplus the Coalition boasted about delivering looks to be cactus, but that’s good, delivering a surplus amid an economic downturn is about as useful as having 1000 toilet paper rolls in a flu pandemic.
Now, the risk is that the Coalition will listen to its own rhetoric instead of expert advice, undercook its stimulus package, and potentially send Australia into recession.
The fact is, Labor set the benchmark for good economic management during the GFC and there will be hell to pay economically, and politically, if the Coalition fails where Labor succeeded.
The Coalition has spent a decade turning “stimulus” into a dirty word. Don’t believe me? Treasurer Josh Frydenberg did five interviews on Thursday and not once did he even utter the word “stimulus”, even as the media reports he’s about to hand down a stimulus package. As treasurer, Scott Morrison even declined to confirm whether he considered stimulus to be a useful policy option. That’s like a builder declining to say whether hammers are useful tools for building a house. It should be a statement of the obvious.
If the Treasurer can’t even use the word “stimulus”, what chance is there that he’ll deliver one large or well-targeted enough to make a difference?
The Coalition is quite capable of targeting its spending, judging by the precision used to target marginal seats for a $100 million cash splash in recent the sports rorts scandal. It has however, shown less aptitude for targeting money where it’s needed (as opposed to where it’s electorally advantageous).
Reports claim the government’s “fiscal measures” – they can’t use the “s” word – will be in the billions and will target jobs, small business cash flow and capital investment. A government source told the Financial Review, the problem was considered to be one of supply, not demand, saying: “There’s no point giving people money if businesses have nothing to sell them”.
But equally true is this, there’s no point giving business money if people won’t buy anything. That’s why targeting the majority of stimulus at business is risky; business won’t invest if there’s no demand. The Christmas period-usually a boon-time for Australian retail-was a bloodbath, with companies like Jeanswest, Bardot and EB Games going under because people aren’t spending.
The government promised its $300 billion income tax cuts package, delivered over 10 years, would boost growth and household spending, but last year most people saved the tax cuts and used them to pay down debt, instead of spending the extra money in their pockets. They did the same with interest rate cuts.
That’s why a stimulus package that supports households, such as by increasing Newstart, has a double benefit. Newstart is about 20 per cent below the poverty line and increasing it would help households out of poverty, which is good in and of itself. But raising the rate of Newstart would be an effective way to boost growth too. Money would be put straight back into the local economy through spending on things like groceries, rent, replacing an old fridge, or buying new clothes for the kids. And that’s good for business-win, win.
Leigh Sales admonished shadow treasurer Jim Chalmers this week for spruiking Labor’s economic credentials when asked about lessons from the GFC, but Labor has every right to boast. Despite the Coalition’s rhetoric, Labor’s stimulus package worked: Australia stayed out of recession, kept its decades-long trend of uninterrupted growth and hundreds of thousands of Australians kept their jobs. Australia Institute research shows most voters agree, with 62 per cent of Australians believing Labor’s stimulus package kept Australia out of recession, in contrast to other major developed economies.
In any case, Labor’s achievements and the lessons learned are pretty much one and the same. During the GFC, Labor accepted Treasury’s advice to “go hard, go early and go households”. And Jim Chalmers gave Leigh Sales a straight answer: “…You need to get in fast enough and it needs to be substantial enough and one of the things about the early ’90s recession, the last time Australia didn’t avoid recession, was that the stimulus kicked in too late.”
Labor has already proven it can manage the economy through a global financial crisis. Now the Coalition’s plans to deliver modest “fiscal measures”, targeted primarily at its friends in business, will be put to the test.
It’s a test Australia can ill afford for the Coalition to fail.
Ebony Bennett is deputy director at independent think tank The Australia Institute @ebony_bennett