The economy? All going to plan

This week’s economic growth figures are the first since the $158 billion Morrison–Albanese tax cuts were waved through parliament in July. That the GDP figures show – at 1.4 per cent – the worst annual growth since 2001 is unsurprising, as Prime Minister Scott Morrison said yesterday. Those tax cuts could hardly have been any better designed to shrink Australia’s economy.

Morrison claims that they were designed to stimulate growth through consumer spending, but if he’s sincere in this, he’s also misguided. With household debt astronomically high, tax cuts for middle-income earners are more likely to go into repayments. Householders’ debt hit emergency levels in 2018 (and was still close to 200 per cent of national income early this year), but tapered off a bit when it became clear they couldn’t simply rely on house prices continuing to skyrocket. Consumers slowed their spending and refocused on debt management, and they’ll likely continue to do so with their tax cuts. Perhaps deflating the debt bubble was the plan all along.

They won’t truly feel the pinch until interest rates rise, but households are no doubt glad of the relief. Wages have barely risen for seven years, and household savings are only marginally above the basement-bottom levels of 2018. The steady accumulation of private debt over the past 25 years has now reached a level that worries the Reserve Bank, so the prospects of taking on even more debt to benefit from emergency-low interest rates is not as appealing as it might be. We can’t spend our way out of a pending economic malaise like we did before the global financial crisis. And the interest rates don’t provide much of an incentive to save. Basically, we’re in a bind.

Without consumers able to come to the rescue, Australia’s economy is being kept afloat by company profits – which don’t trickle down to households – and, ironically for a government with faith in Hayekian neoliberalism, government spending. Tax cuts, however, are structural. They carve a large, irreversible chunk out of future government revenue, and therefore significantly curtail the capacity of governments – this government and future governments – to stimulate the economy with some targeted spending. Kevin Rudd’s government did just that in 2008–09, and we all recall the trouble he got into in the reactionary and tabloid media and among the neoliberal faithful. Those faithful now dominate the government benches, so there’s little chance a Morrison government will do anything sensible like go into (public) debt to fund a stimulus package. Demonstrating their faith in an extreme neoliberal orthodoxy requires them to maintain a (contractionary) budget surplus. Given the choice, it’s far more likely they’ll pull the country into recession.

And for the first time since the GFC, a recession looks genuinely on the cards. We may already be in one, if one takes a substantive definition of the word rather than the two-consecutive-quarters rule of thumb established by former commissioner of the US Bureau of Labor Statistics Julius Shiskin in an otherwise-forgotten New York Times op-ed in 1974. Yesterday was the first time Australia’s rate of GDP per capita fell below zero since those heady days of 2009.

Then, Australia avoided a recession through the application of sound economic policy. Now, there would be no way Morrison and Treasurer Josh Frydenberg could claim, as Paul Keating did, that a recession – should it eventuate – is one we “had to have”: it’s entirely avoidable. Future historians may well reflect that the oddest thing about it is that in May 2019, we voted for it.

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