May 13, 2020

Federal politics

Economic fantasy fiction

By Russell Marks
Image of choose your own adventure book

© Ben Stevens / Alamy Stock Photo

Australia’s future is looking increasingly dystopian thanks to our governments’ continuing affair with neoliberal theory

The good news for everyone who’s lost their jobs because of the COVID-19 restrictions, for businesses that have been pushed to the brink of collapse, and for everyone who’s just a bit fed up with their own company, is that Australia is set to rebound out of this little setback like a bull kangaroo on heat. Sure, economic growth will shrink by 10 per cent before the end of the financial year. But, says the Reserve Bank, within two years we’ll have smashed our way back to where we would have been with annual growth in the China-esque order of 6 per cent. It’ll be as if COVID-19 had never spread.

There are plenty of better fantasies out there (Archie Weller’s Land of the Golden Clouds is a personal favourite, and it doesn’t mention GDP even once). The RBA’s fantasy asks us not just to suspend disbelief but to totally abandon it. Where will this growth come from? Will Chinese and Indian undergraduates rush back to learn at our universities despite travel restrictions and increasing competition from the United Kingdom and the United States? Will tourists flock back down under? Will the media and arts industries spontaneously recover from perhaps the biggest shock they’ve ever experienced? And will the escalating trade war with China simply fizzle out? The idea that our full recovery from this recession will only take twice as long as it did in 1991–92 (when the recession was less than a seventh as deep) must be an attempt at humour, though if so it’s darker than any joke I’ve heard.

This is particularly grim given the plans Scott Morrison and his government have been outlining. Remember those gigantic, generation-busting tax cuts – $158 billion of them – rammed through parliament last July (with Labor’s support)? They’ll stay, as will the Turnbull government’s previous $144 billion tax cuts, along with a renewed commitment to returning the budget to “surplus” as quickly as possible. That means we’ll see gigantic, generation-busting cuts to government spending. The ongoing cuts to ABC funding are just the beginning. Universities, which were forced by earlier cuts into a position of ever-greater reliance on fee-paying international students, can’t look forward to replacement funding – job cuts will be the least of their worries. Josh Frydenberg has been spruiking even more tax cuts for business in recent weeks. Assuming they still want a surplus, that means even deeper spending cuts.

If we step away from horror-fantasy for a moment and consult a different genre – economic history, for instance – we’d learn that each time governments have met recessions with budget cuts over the past century, the recession sank deeper and lasted longer. And each time governments have borrowed to spend on infrastructure, job creation, social security and investment, much of the pain of recession has been avoided. (The main exception was the recession that followed the shock oil price increases in 1973: additional spending only fed stagflation, which saw inflation rising at the same time as unemployment. But that was a highly specific set of circumstances that isn’t repeated this time.) Many Australians hoped that Morrison’s three expanding rounds of COVID-related stimulus in March signalled that he and Frydenberg were suddenly less worried about debt and deficit than they were about jobs and growth. But that, it turned out, was just a plot twist in the tawdry tale of Australian governments’ romance with neoliberal theory since the 1980s. It’ll be back to the new normal soon, Morrison and Frydenberg are saying, so we can look forward to stagnant wages sliding into job losses and misery all round. The only growth we’ll see is in inequality.

The last time we had to cope with a government that insisted on austerity as a response to recession was in 1929–30, when James Scullin’s new Labor government was spooked by the Bank of England’s Otto Niemeyer into cutting spending, lowering wages, paying down debt and balancing the budget. The effects were catastrophic. (Following the stock market crash of 1987, Bob Hawke and Paul Keating insisted on budget surpluses – a staple of neoliberal theory – which was part of the reason Australia sank into recession in 1990. The economy eventually recovered when policy shifted to planning and job creation.)

Australia’s future is looking increasingly dystopian. The main reason we’ve so far avoided the nightmarish poverty and inequality that now plagues the US is that we’ve retained much of the welfare state that emerged out of the high-spending period of World War Two and postwar reconstruction (when government debt reached 120 per cent at one point). But Australia’s ratio of tax receipts to GDP is now well below the OECD average of 34.3 per cent. Frydenberg’s target is 23.9 per cent, which is actually lower than the United States’ most recent (2018) reported ratio of 24.3 per cent – and at a time when our GDP is 10 per cent lower than anticipated.

When the recession bites, Morrison is telling us, the plan is spending cuts and deficit reduction. In other words, there’s no plan at all. Welfare recipients, lulled into a false sense of security with brief COVID supplements, will be pulverised like never before. Non-government organisations, to whom much of the service-delivery work of government departments has been outsourced, will see their funding dry up. Schools, universities, the public health system, the environment – the foundations of Australia’s prosperity – can look forward to major pain ahead.

If this dystopian future comes to pass, it may be difficult to appreciate that it was merely one of many possible alternatives. If only the Howard government had invested the proceeds of the mining boom in a sovereign wealth fund, as Norway did. If only voters had tipped out the Abbott-Turnbull-Morrison government last year, as the polls predicted they would. If only our political leaders were prepared to take lessons from empirical evidence instead of from three centuries of hand-wringing liberal theorists – from David Hume to Milton Friedman – whose main concern is the protection of private property. If only Morrison and Frydenberg were prepared to borrow – at record-low interest rates – to protect Australian society and those of us who constitute it.

But in this choose-your-own-adventure tale, Australia’s government seems determined to make the worst possible choice: to condemn the country to a recession that is deep, long, painful and unnecessary. And all to chase the dream of a “trickle-down effect”, which supposedly has corporate wealth flowing into ordinary people’s pockets, and which has been seen in real life about as often as unicorns.

Russell Marks

Russell Marks is a lawyer and an adjunct research fellow at La Trobe University. He is the author of Crime and Punishment: Offenders and Victims in a Broken Justice System (Black Inc., 2015). 

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