The management of the Australian economy is in the spotlight. While the Morrison government has persisted with its pre-election rhetoric that "Our Economy is Strong" and emphasising their commitment to "Make it Stronger", our economic wellbeing has been slipping further away.
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Our economy has been weakening for at least the last couple of years. The latest growth numbers, released this week, suggest our growth rate was a mere 0.5 per cent for the December quarter, and 2.2 per cent for the year 2019. This is well below what the government/authorities had been forecasting, and well below what they consider to be our "trend growth rate".
Wages have been weak and flat-lining, household debts are at record levels, and unemployment has recently begun to rise again, with nearly 2 million people either recorded as unemployed, or unable to get as much work as they want.
The government's slogans and rhetoric therefore haven't been resonating with the public (quiet or otherwise) who have mostly been struggling with the ever mounting costs of living, in the context of all this economic uncertainty.
Of course, the government now faces the inevitability that our growth will slow even more, as the effects of the drought, the bushfires, and the coronavirus flow through. Indeed, given the inherent weaknesses in our economy, it is now possible that our economy could slip into recession in the course of this year.
While the government has ignored many calls over many months (including from the Reserve Bank, business and civil society groups, and international agencies such as the IMF) for them to stimulate our economy, it is only in the last few days that Morrison has began to acknowledge the need for stimulus. Morrison is now promising "targeted, modest, and scaleable stimulus" but details are yet to be provided beyond large general assistance for drought and bushfire recovery.
A main reason why Morrison/Frydenberg have resisted the calls for stimulus has been their desire to achieve a budget surplus in this financial year. Indeed, they were so committed and confident at the time of the last budget that they enthusiastically announced that we were "Back in Black", a year before we actually were, and they produced coffee mugs in recognition!
It is only in the last few days that Morrison has began to acknowledge the need for stimulus.
While many economists and commentators have suggested that a surplus is lost, the government is yet to formally rule it out. I am very cynical about this! But in a $2 trillion economy it may still be possible to use "creative accounting" to generate a small surplus, even of a billion or two - for example, by delaying spending on the "big ticket" spending programs such as the NDIS, infrastructure, and even recovery monies committed for the drought and bushfires, until after June 30.
As it is still early days, it is difficult to estimate the likely impact of the coronavirus, especially as it spreads globally. I see some estimates that it will run for some years, taking a least 18 months to develop an effective vaccination, with a majority of people (especially the aged) ultimately being infected. It is definitely disruptive to economic activity, impacting on spending and, most importantly, on global supply chains.
Although our Reserve Bank has lowered interest rates again this week, and other central banks are doing the same, this additional liquidity is unlikely to stimulate much growth, and central banks can't hope to affect supply chains. Clearly, while the direct effects on industries such as tourism and education may be quantifiable, the disruption of global supply chains is most difficult to estimate, and could be spread over a considerable period of time.
All this makes it difficult for the government to decide where and how much to stimulate. General stimulation such as increasing the Newstart allowance and spending on affordable housing can be directed to those most in need and most likely to spend. However, as the impact of the virus is ultimately more a test of our health and aged care systems and services, this is perhaps where the government may be better to focus its "targeted stimulus".
It is also certainly an area where the government will be under considerable political and community pressure to do and spend more anyway, when the Royal Commission delivers its final report.
While we have enjoyed some 29 years since a recession, this may be coming to an end.
John Hewson is a professor at the Crawford School of Public Policy, ANU, and a former Liberal opposition leader.
