The IQ of Australia’s economists, analysts and commentators surged exponentially yesterday afternoon as they instantly explained what was obvious to us all: we’re in recession.
As of 11.29am, Australia was, according to most commentators, poised to strongly out-perform the rest of the world by maintaining positive, albeit weak, growth. After 11.30, we were mired in recession — and everyone was busy explaining why.
There’s the definitional debate, of course. Some say it doesn’t matter too much how you define it — if it walks and talks like a recession, it is one. Others appeared annoyed that the September quarter figures hadn’t been revised into the red. “We’re in recession right now,” Michael Stutchbury was shrieking by mid-afternoon. Tim Colebatch produced GDP per capita with a flourish this morning to declare we were going down at the same rate as everyone else. “Most economists declared the nation to be in recession,” said the AFR.
Instant experts. Just add data.
And then there’s the bogus savings issue, which Glenn Dyer unpacks elswehere in this Crikey edition.
Malcolm Turnbull insists that it is all evidence that he was right about the first stimulus package. Mark Riley on Seven News last night nailed him on this, reminding viewers of Turnbull’s initial enthusiastic support for the package.
It’s not Turnbull’s opportunism that’s the problem. Complaining about a politician — particularly one in opposition — being an opportunist is like complaining about teenagers’ bad taste in music. As Leader of the Opposition, Turnbull doesn’t have to be consistent or even particularly principled. But it would be handy if he was occasionally right.
This is Turnbull a month ago: “Every other country in the world, comparable country that is undertaking stimulus measures has included tax cuts. Australia is the only one that hasn’t.”
Let’s do a quick check on that, because — I may be wrong — but I have the impression no-one has challenged this. The Bush Administration’s stimulus package in February last year included one-off tax rebates, not permanent tax cuts of the kind demanded by Turnbull. The recent Obama package includes tax cuts for 2009 and 2010 only. The UK Government announced one-off tax rebates last May and sales tax and further one-off rebates in November. The Germans went for business tax breaks, infrastructure, energy efficiency and boosting credit. No tax cuts, permanent or temporary. Nicolas Sarkozy’s stimulus package included tax breaks for business and plenty of investment in research and infrastructure, but no tax cuts or handouts. The Japanese went for one-off handouts.
So who permanently cut taxes? Who was so enamoured of the “permanent income hypothesis” that they undermined their fiscal base permanently because that money would be spent more readily than one-off rebates? Only the Harper Government in Canada did, as a small component of its stimulus package, which is primarily infrastructure investment and funding for social housing. Sounds a bit familiar.
This argument over the spendability of permanent tax cuts versus handouts, upon which Malcolm Turnbull has built his entire strategy for the economic crisis, is an academic parlour game, a w-nk for economists to pursue in the common room and economic journals. It has zero real-world significance. If Australians saved their handouts — and spending seemed to go up an awful lot in December for a country that was saving — they would’ve done so regardless of whether they were tax cuts or handouts. They saved because they were scared about their economic future.
There were and are plenty of grounds for critiquing the Government’s stimulus packages. The lack of tax cuts for business is probably the biggest one. But instead Turnbull has gone for the most arcane and irrelevant debating point, which fails to explain why Australia still outperformed just about every other country in both GDP and demand in the December quarter.
The Government’s first stimulus package was aimed at retail and construction jobs (the Coalition strangely rarely mentions the increase in housing construction activity that came from the First Home Owners’ Boost). The second is similarly aimed, but with a greater focus on infrastructure. Rudd and Swan have pursued a different mix of stimulus from those adopted in other countries. So why are we streets ahead of the Japanese and the British and the Americans? Why aren’t we going down like the Canadians, at 3.4% annualised, or the Americans at 6%?
Mind you, we could yet achieve that, given the enthusiasm of the media to make sure no one is under any misapprehension about how badly we’re doing. Constant headlines about recessions will make damn sure we do have one. It feeds directly into consumer and business confidence, devouring whatever positive sentiment might be left.
Still, bad news sells. And mainstream media definitely needs more sales at the moment. Some people always do well out of recessions.