11.30am on June 3, 2009 was a key moment in Australia’s response to the financial crisis. That was when the national accounts for the March 2009 quarter were released, which would reveal whether Australia had tipped into recession after GDP had fallen 0.5% in the December 2008 quarter.
At 11.30, the ABS revealed surprise growth of 0.4% (a number later revised up to an impressive 1%). Kevin Rudd and Wayne Swan’s first stimulus package had saved Australia from recession, to the visible chagrin of then-opposition leader Malcolm Turnbull.
Since then the Coalition, News Corp, The Australian Financial Review and right-wing economists have tried to claim it was anything but fiscal stimulus that saved the economy. But the facts, stubbornly, remain.
Yesterday, 11.30am saw the ABS reveal a 0.4% GDP result for the September quarter. It, too, is a stubborn fact, in a different way.
The government and its media cheerleaders have long insisted that Scott Morrison’s tax cuts would provide economic stimulus — some febrile journalists even compared them to a 2008-style Rudd cash splash. Retail sales figures have repeatedly shown that if anything consumers are spending less in the wake of the tax cuts.
Yesterday confirmed it. Worried households put the tax cuts straight into the bank, lifting the household savings ratio to 4.8: “The reduction to tax payable did not translate to a rise in discretionary spending, which led to a visible impact to household saving,” the ABS’ chief economist noted.
Far from celebrating a “cash splash”, households remain bunkered down: spending rose just 0.1%, understandable given wages growth actually declined in the quarter. Spending on discretionary goods and services fell 0.3%. Those sort of numbers haven’t been seen since a decade ago.
As for the Reserve Bank’s “gentle turning point”, it was a gentle turning point down. Growth was 0.6% in the June quarter (revised upwards from 0.5%) and 0.5% in the March quarter. Only upward revisions of previous quarters “propelled” the annual GDP result to a mighty 1.7%.
The Coalition and its cheerleaders tried to spin the result as a great achievement — a repeat, if you like, of June 2009. Treasurer Josh Frydenberg claimed the result showed the economy was “back on track”. The Financial Review initially trumpeted the result too, before reality kicked in as business groups, including the BCA, began lamenting the outcome.
The economy only has two things going for it: a strong run of commodity prices that helped deliver the first consecutive current account surpluses in nearly fifty years, and continuing strong government spending — on infrastructure by NSW and Victoria, and on the NDIS by the Commonwealth. Both contributed a total of 0.2% each to the final growth figure.
But all those exports aren’t flowing through into the real economy anyway. State final demand in Western Australia, the centre of the current boomlet in mining investment and mining profits, fell 0.2%, the only state other than South Australia where demand shrank. Exports can pump up a GDP result (and government coffers), while doing nothing for ordinary households.
Commodity prices have since come off their peak by around 10% as well, but at least government spending should continue to prop up a crippled economy. Reserve Bank governor Philip Lowe also appears to be betting on rising property prices to lift the economy. The previous round of interest rate cuts, Lowe said on Tuesday in announcing that rates would stay on hold, “boosted asset prices, which in time should lead to increased spending, including on residential construction … Lower mortgage rates are also boosting aggregate household disposable income, which, in time, will boost household spending.”
In other words, the RBA is placing its hopes on the re-emergence of the magic pudding-like wealth effect as people start getting more confident and sentiment improves as their house prices rise.
What’s not said is that this needs to happen while workers are given wage rises barely above inflation. Nor is it mentioned that young people and low-income earners pay the price for economic-management-by-property-bubble, with declining affordability locking even more people out of the housing market.
Nor is there any sign of a wealth effect yet — new car sales figures out yesterday showed sales falling a whopping 9.8% in November compared to a year ago — extending the decline in new vehicle sales to 20 straight months. Today’s retail sales figures for November showed no growth at all in November, well below expectations — indeed, the seasonally adjusted turnover fell slightly from October.
And remember, the federal government is now starting to take money out of the economy, with its budget surplus and refusal to return more than a fraction of bracket creep to hard-pressed households.
We’re on track, all right — on a road to nowhere.
What will it take for the Coalition to wake up to the state of the economy? Let us know your thoughts at boss@crikey.com.au. Please include your full name to be considered for publication.
What do you expect when you have 2 utter incompetent charlatans in the 2 most senior positions. Apparently, crushing the unions & torturing asylum seekers is far more important than jump-starting the economy.
….and with #Scottnoidea’s plans to further cut the public service, the odds of a long recession have been all but set in stone.
The Coalition has had 6 years to fix the alleged ‘budget emergency’ spouted, daily, by Tony Abbott. By their own admission they are experts at managing the Oz economy. When are they planning to start?
They’re fixing the economy to take it into recession. Cuts to the public sector will drive growth even lower, into negative territory. My money is on a recession come September of 2020.
There is a huge shining light (at least to me) in these numbers, particularly household confidence, spending and saving. Why? Because it demonstrates that households are actually aware of and smart enough to realise that things are pretty scary at the moment. Saving and not spending is the smart thing to do.
And much of this scariness can be levelled at failures of successive governments, but Morrison’s would have to be the worst.
Just look at things now. There’s climate change of-course. Global politics and multilateralism has gone from sort of OK to downright frightening, except for Russia and China. We have corporate agendas to restrict government action masquerading as trade agreements, a cretin in the Whitehouse and a buffoon in number 10. What more could go wrong?
Domestically, we don’t have a properly functioning national government. At best, Morrison’s government is a marketing operation of focus groups comprised of party funders and officials setting policy.
At every level, be it employment security, health, asset values, retirement, energy, etc, the federal government has been undermining the confidence of the household sector. Add to this, Morrison’s government appears to have a strategy to win the next election by deliberately creating civil unrest and conflict with their inhumane treatment of refugees, giving rights to religions to be nasty and to break laws, to stop protest, against people who campaign for humane treatment of animals, etc etc etc.
Its no wonder the tax cuts went into reducing debt.
An excellent analysis. When I began studying economics at Monash University in 1966 we were told in the first lecture in macro-economics that economists assume all people think rationally when dealing with matters economic. Thirty years of neoliberal economics has shown this to be completely false, but the reluctance of households not to spend now does demonstrate rationality and long-term thinking.
The LNP have always been woeful economic managers and the last six years of government have borne that out beautifully. Regrettably so.
Yes I don’t see much written about the psychological damage that this “Government” is doing to the country. The dull despair created by their stubborness to do nothing about climate change in the face of overwhelming fact and obsession with the mastubatory fiscal surplus and so on and so on. The negative soul destroying marketing driven “how good is it!” garbage is devoid of any empathy for anything at all. It’s no wonder no one feels like buying anything with the dispiriting atmosphere hanging over thr country.
The more I read articles like this, the more I think we have the economy that we want – or at least the one we voted for. We’re not going to see structural changes that would enable growth, because that would mean the government is breaking the promise it made to the voters about what kind of Australia they would deliver.