There’s now a clear split within policymaking ranks over Australia’s path back to economic growth and low unemployment.
On the one hand there is Josh Frydenberg and most of the government — especially right-wing backbenchers — backed by big business and their media cheerleaders at the Financial Review and News Corp, who think that Australia must reform its way to growth via a supply-side agenda of tax reform, industrial relations changes and deregulation.
On the other side is the Reserve Bank (RBA) governor Philip Lowe, who says demand is the central problem in the economy.
When Lowe spoke to the House of Reps Economics Committee on Friday, he identified three major issues affecting the recovery. One was the obvious one — Victoria. The second was “the growing impact of an extended period of weak aggregate demand”.
In the initial phase of the pandemic some firms were able to keep going because they had a pipeline of work to keep them busy … But with new contracts having been scarce over recent months, this pipeline is being emptied for many firms and they are having to scale back. Critical to reversing this is stronger growth in aggregate demand.
The third issue was that “households and businesses will remain more cautious” due to the pandemic.
That is, two out of the three dominant issues in the recovery relate to demand, not supply. Demand is the way out of this recession.
It’s not the first time the bank has emphasised the importance of demand. For that matter, if people can remember back before the pandemic, they might recall the RBA was pressing for fiscal stimulus to lift demand last year too.
Fiscal circumstances has obviously changed since last year, but Lowe is unconcerned about debt. “While monetary policy has played an important role,” he said, “it has been fiscal policy that has provided much of the support to the Australian economy. This is quite a change from how things have worked over recent decades and it is being accompanied by a significant increase in public borrowing.”
“By borrowing today to support the economy we are avoiding an even bigger loss of output and jobs that would damage our economy and society for years to come, which would put ongoing strain on the budget. Australia’s public finances are in strong shape and public debt here is much lower than in most other countries.
“The overall national balance sheet is also in a strong position after decades of good economic performance. Government’s financing costs have never been lower, with interest rates being the lowest since Federation … It is the right thing to do to borrow today to help people, keep them in jobs and boost public investment at a time when private investment is very weak.”
Scott Morrison would like to be with his colleagues in the supply camp, but political and economic reality keeps dragging him toward Lowe and the RBA.
He refused to countenance fiscal stimulus before the pandemic, preferring wage stagnation, unemployment stuck above 5% and tepid growth. To his credit, he abandoned the Coalition’s years of revisionist nonsense about fiscal stimulus and embraced it as the looming crisis became clear, then re-upped the dose when the Victorian outbreak wrecked the September quarter recovery.
All the while, though, with the encouragement of business and the media, the government have been plotting a way to drive “reforms” aimed at helping big business — tax cuts, industrial relations deregulation, handouts for fossil fuel companies. Josh Frydenberg belled the cat when he cited Margaret Thatcher as an inspiration for the government’s plans — evidently to Morrison’s chagrin.
Morrison and Frydenberg are not averse to more fiscal stimulus, but they want the states to do it. There’s a great deal of sense in this: states can aim money at more smaller-scale infrastructure projects and services that will support growth and employment better than the Commonwealth can.
But the Commonwealth can borrow money very cheaply at the moment, and from a taxpayer perspective public debt is public debt, regardless of which level of government holds it. There are also some areas entirely within Commonwealth responsibility, like aged care, that badly need investment.
Otherwise, the government’s only plan to address demand is to try to stop the long-scheduled increase in the compulsory superannuation contribution. While ostensibly on the basis that workers need this increase as a wage rise now, in fact it’s part of the Liberal Party’s forever war on industry superannuation.
You have to admire the chutzpah of the Liberals — having spent years engineering wage stagnation as a “deliberate feature” of the industrial relations system, they now profess to be shocked, shocked to find wage stagnation is going on here, and use it as a basis to prevent a superannuation increase.
Meanwhile the jobless queues lengthen and households and business hunker down to await better times, off in the 2020s.
Writing as though Scotty From Marketing and his government are two different things – they’re not. Words are cheap …. and so is Scotty. His actions will out him – we’re not all goldfish.
“No, no, no. What I was saying then was …..”
Don’t forget the smug tone, klewso. Wouldn’t be Scotty from Marketing without it.
Can anyone tell me what is the difference between Scotty saying “I reject the premise of your question” and, when Jonathan Swan presented him with the deaths per capita ratio, Trump saying “You can’t do that. You can’t do that.”?
This virus crisis is outing Scotty more and more as Trump-lite – neither will take responsibility for the hard stuff. Think about Morrison’s ministerial career and ask yourself what he has created, what ideas he has presented, what he has built. All he’s done is stop the boats, cut spending to the things he doesn’t like, increase spending on things to give himself political advantage, pass the buck to the states when a national response is required (bushfires, Covid) and outmanoeuvre Abbott, Dutton, Turnbull and Shorten for personal advancement.
And “donate” tax dollars to donors to the Coalition.
You left out his most creative ‘achievement’, DF – robodebt.
Robodebt was conceived in 2015, when Morrison was Social Services Minister. It became operational in 2016, when Morrison was Treasurer, writing the ‘savings’ (extortion, actually) into his budget.
Peter – thanks. True.
If I’ve learned anything at all from this pandemic, it’s that I can make do with a whole lot less than I used to and still have a happy life, especially those discretionary things like news cars and gadgets and dining out and all that other vacuous consumption. There are many, many things of much greater importance.
So screw ‘demand’ when all of this is over. I might take the occasional tent camping holiday or grab a coffee at the local caf, but I’m not going back to how it used to be.
And I have the added satisfaction of knowing that every dollar I save keeps a few pennies out of the pockets of Australia’s wealthy elites. Call me petty if you must, but I really like that!
These “quiet times to reflect” must be giving them nightmares.
Jeez, Graeski, if we all carried on like that we might even end up saving the planet, and then where would we be?
Graeski…..while you and others here might feel comfortable in shouting out the phrase ‘Screw Demand’ I can’t see it translating to the great unwashed as a whole, let alone the fatter cats in the pet shop. Witness the colossal demand at the moment for new luxury cars by those who weren’t able to spend their money on the annual six week First Class holiday to Wimbledon and the continent. You can’t get a new Bentley, a Roller or a halfway decent BMW in this country for love or money right now, because they’ve all been snapped up by people who have no idea what else to do with the cash. Waiting lists are six months long.
Make no mistake, once things are back to a semblance of normal, demand is going to rush out faster than the guts of a trod-on frog for a significant portion of our population.
The problem is you won’t keep the pennies out of their pockets. Others will still buy the goods, and the wealthy elites will reduce pay rates for those they still employ (and have already).
Agree.
If people spend enough time thinking and realise they had enough to be happy it would e the death knell of capitalism as we know it.
“Logged in as klewso. Log out?” ….. “Sorry, you must be logged in to comment”?
Make up your F***ing mind.
There is some weird idea that employers being told that they did not have to increase their superannuation payments would happily provide that same amount to their employees as a wage increase. Unless there was legislation somehow forcing employers to do this across the board, the opposite of the untrammelled ‘free enterprise’ espoused by the LNP, virtually all employers would see this as a personal bonus.
Similarly, reducing company tax, as evidenced by Trump’s cuts in the USA, translates into increased dividends, buy-backs and bonuses, not new investment.
But if employers are as short-sighted, greedy and unprincipled as you suggest, they would, for example, take JobKeeper money from the government and hand it to their shareholders as dividends… umm…
supply-side agenda of tax reform, industrial relations changes and deregulation
Has anyone ever looked at all the other times we’ve cut taxes for the rich and business, reduced worker power and cut ‘red tape’, and seen what the results have been?
I know they haven’t rhetorical question – why doesnt the msm take them up on it?