Have Scott Morrison and Josh Frydenberg lost their nerve on the economy?
Having apparently spent more time leaking the details of its construction industry package than actually preparing them, the government yesterday released its “HomeBuilder” policy to, at best, tepid enthusiasm in some quarters and harsh criticism in others.
Ignoring widespread calls, including from the Master Builders Association, for a big investment in social housing, the package aims less than $700 million at a particularly narrow sweet spot — families under $200,000 a year building a house up to $750,000 or undertaking a large renovation in houses up to $1.5 million in value.
The fact that the package expires in December suggests that anyone who hasn’t already got a builder lined up and got their DA at or near the finish line will miss out. That is, this won’t create much in the way of additional spending, just reward middle-income families who happen through sheer good luck to have been planning a build or major reno at this exact moment.
The package has been denigrated as middle-class welfare, which misses the point that the intended beneficiaries are construction industry workers who face unemployment as economic uncertainty smashes an already weakened building industry.
The correct criticism is that far more bang for the taxpayers’ buck could have been achieved with some spending on social housing, provided it was given to the states on the condition that there be no reduction in pre-COVID levels of social housing funding in subsequent years.
But it also looks far too small, as if the government was caught betwixt and between — the desire to address widespread and well-evidenced concerns about a coming collapse in construction demand, especially in the residential sector, on the one hand, and fiscal conservatism and a desire to keep the construction sector package of the same order of magnitude as packages for other sectors, like aviation.
Keeping construction going is important mainly because it employs so many people. At nearly 1.2 million, it’s our third-biggest employer, so even a small contraction in demand puts tens of thousands of people out of work.
And because of the time lags involved in construction, those jobs won’t bounce back quickly. That feeds into the wider economy, especially via perceptions of unemployment and the risk of future unemployment, which directly affect spending decisions.
It’s those spending decisions, big, small and in-between, that will be central to the recovery.
Households have been keeping their wallets closed for years, due to wage stagnation, with direct consequences for economic growth. That problem accelerated in the March quarter. “Household final consumption expenditure fell 1.1%, the first decline since December 2008, detracting 0.6 percentage points from GDP,” the ABS reported. “The through the year result was -0.2%, the weakest since March 2009.”
That flows through into investment decisions. While big business and buffoons like Jennifer Westacott insist company tax cuts are needed to lift investment, the real impediment to investment is that consumers aren’t spending enough to justify it.
“Non-mining business investment fell 1.7% this quarter and 6.6% through the year, reflecting weakness across both non-dwelling construction and machinery and equipment purchases,” the ABS said. Tax cuts will not fix that.
Getting households spending again — getting consumers confident enough to spend — is thus crucial, and the government has the most important role in that process, especially around indicating a preparedness to do whatever is necessary to support the economy, something which it did a reasonable (if far from perfect) job in its first three packages of doing.
Yesterday’s package doesn’t pass muster on that score.
This is the lesson of the post-financial crisis period, when governments, especially in the UK and Europe, too rapidly abandoned fiscal stimulus — even in some cases switching to austerity.
That left economies struggling to recover, and even those that did, like the UK, were mired in wage stagnation or even wage declines that impoverished workers, while cuts to government services instituted by governments like David Cameron’s alienated them.
What’s also damaging are the public arguments of self-interest corporate leaders like Woolworths chairman Gordon Cairns demanding workers — low-income workers, the most marginal in the workforce — accept pay cuts via cuts to penalty rates.
Typically, The Australian Financial Review wrote up his demands without mentioning the hard evidence that when penalty rates were cut in the wake of the Productivity Commission’s industrial relations report, it didn’t create a single new job.
Big companies — especially ones like Woolworths, which coined during the lockdown — demanding wage cuts will only increase the sense of uncertainty among workers.
NSW Treasurer Dominic Perrotet is doing the same with his punitive wage freeze — which will be a real wage cut, despite low inflation — for NSW nurses, police, teachers and emergency services personnel.
Hold the line and punish workers, the Financial Review editorialised today. It’s exactly the attitude from business and their cheerleaders that will keep the economy mired in recession when we need to get households opening their wallets.
How could the government have better planned the construction stimulus package? Let us know your thoughts by writing to letters@crikey.com.au. Please include your full name to be considered for Crikey’s Your Say column.
If we can’t get a good commitment on social housing in desperate times like this, I can’t see any path to more social housing in the future. This would have been a perfect time to boost employment and provide a better safety net in a very fragile* sector. If not now, what will it take?
*Fragile in the sense that rent prices are way beyond what many people can realistically afford to pay
For years various groups have implored govts to start a national social home building scheme. We know what’s coming down the road, we know within 15 or 20 years a UBI will be necessary. Rents are already unaffordable and will only get worse unless we start building. NSW is already 200,000 homes short.
A UNSW’s City Futures Research Centre paper estimates that by 2036 Australia will need around 730,000 social housing properties plus 295,000 affordable rental homes. “Our analysis shows that the sheer number of households in rental stress across the country means that if we’re going to meet the need, at least 12% of all our housing by 2036 will need to be social and affordable housing—which is a very reasonable ambition in global terms,” said lead researcher Laurence Troy.
You have to wonder what this govt’s problem is. Surely this is precisely the time to fast track this. Money is cheap. It’s politically savvy. It’s going to have to be done eventually anyway. Best of all there’s a return on investment. God, if ever there was a win win this is it!
The homebuilder package was only meant to be an announceable, not to be taken seriously and anyone who does cash in will definitely come from the deep blue coloured column on the spreadsheet. The decent way to stimulate the construction sector, by building large swathes of public social housing, is ideologically verboten. Will never happen with this sadistic mob and you would also probably have to work hard to convince the current ALP as well.
I’m a DIY renovator, but even a partial subsidy of the increased cost of having a tradie do the work on our up-coming jobs would have pushed me into their arms – I’m not as young or as enthusiastic for ripping off tiles and pushing barrows of concrete as I used to be. But $150,000 worth of renos? Tell ’em they’re dreaming. Subsidising smaller jobs would give more work to small businesses and sole traders. This is only for the larger construction companies.
“Subsidising smaller jobs would give more work to small businesses and sole traders. ”
It would also have provided help to those ageing at home – and in the current climate fewer of those who are aged will be looking to move into aged care facilities. Adjustments to doors, bathroom renovations such as hand rails and shower screen adjustments, ramps replacing steps at front and back doors, slippery surfaces made less so – the list is endless and a lot could be done for $25,000. Few of the people who need this work done will have a lazy $150,000 sitting around.
This government has no idea of how ordinary Australians live our lives.
Hear Hear!
Too true
Meanwhile, over on The Guardian Australia, I read an article with this first line: “Just 38 of a predicted 36,000 food boxes have been delivered under a $9.3m government initiative designed to deliver emergency food supplies to older Australians isolating throughout Covid-19.”
This federal government’s abilities to plan and then deliver on any plan are around zero. It is absolutely out of touch with what Australians need and expect in these desperate times. Agile, adept, generous, thoughtful, in-touch are never descriptors that could be applied.
Instead they listen to the demands of “big business and buffoons like Jennifer Westacott” or “Woolworths chairman Gordon Cairns”. Blatherskites my old Gran would have called them all.
The government lacks talent. It’s all full of staffers and ex-lobbyists who struggle to do anything apart from mug for the camera.
There’s also no real excuse. They’ve been in since 2013, they should be beyond amateurs by now.
My question is – who in the gov’t ever thought this was a good idea? Remember ScoMo’s edict that the bureaucracy is only there to implement gov’t policy, so it had to come from amid the politicians.
A left over from Scott Cam’s time as a government adviser?
Scott Cam to you, S.Cam to me.
It’s funny how industry groups can’t see a down-side to their infallibility – no matter how many times and how prolonged their bright ideas turn to merde – that’s always someone else’s fault.
As long as there’s someone else to blame, they’re fine – they’ll move on to their next fiasco – and Porter and this government will happily lead the way for them, that seems to be what they’re paid for.
Stagnant wages, uncertain employment, unaffordable health insurance, kids schooling to pay for, penalty rates in lurch, mortgage(s) to wrestle on top (if you can afford that “Happy Renter”) => “$150,000 on renos”? What world does this mob think the voting working class live in – sure it’s not the same planet as them, but …..
There are two tribes in this country – and this government isn’t interested in the larger one (that doesn’t have enough loose change to donate/sponsor them), at least not when there’s not an election in the air.