As the release date of the March 2015 national accounts approached in early June last year, some commentators, including us here at Crikey, speculated the GDP number might be negative. As it turned out, the economy had performed strongly, with a 0.9% result that, since then, has been revised up to 1.1%. Then-treasurer Joe Hockey had the pleasure of having a crack at the “clowns” talking of recession.
As it turned out, the clowns were only a little out — that very quarter, June 2015, recorded growth of just 0.2%. It’s since been revised down to 0.1%. Nonetheless, Hockey had dodged a bullet.
Yesterday there was no dodging the bullet: the forecasts of negative growth turned out to be wrong — but only because they weren’t gloomy enough. Forecasts had ranged from 0.1% growth to a 0.3% contraction. Instead, we got -0.5%, the worst since the financial crisis.
It’s not hard to be the worst since the financial crisis given there’s only been one negative quarter since then, because of the floods in 2011. The Australian economy doesn’t do negatives, by and large. We worry about the economy if it’s travelling below trend, not below zero. A negative number is a gut punch for an economy that has racked up year after year of growth ever since the early 1990s recession smashed us. And just at the moment when our market-based economic model is under the greatest political strain since that recession, we get -0.5%.
With any luck, it will be a one-off. The number was partly the product of slower building caused by a wet spring, soft retail conditions and the failure of commodity export volumes to grow. The current quarter should mean a return to growth. That’s why anyone talking about a second quarter of negative growth (traditionally called a recession) should be run out of town. It’s in no one’s interests for consumers to get jittery, especially in the biggest spending season of the year before and after Christmas. Treasurer Scott Morrison correctly declined media attempts to get him to discuss the prospect; Chris Bowen, invited to do the same, wisely avoided the word as well. Both should stick to that formula.
The reason why we should hope and pray it’s a one-off — and get out and shop til we drop — is that it’s unclear if this government has the wherewithal to actually respond to a downturn. This is the outfit that couldn’t even stick to its own climate policy terms of reference for 36 hours, which thought the passage of a protectionist, defanged ABCC was a major achievement and stumbled from disaster to disaster on a backpacker tax until it found an even bigger fool than itself.
Inevitably, Morrison used the -0.5% result to justify tax cuts for multinationals — as he would have done if the figure was 0.5% or 5%; not merely are company tax cuts an economic panacea that will address growth, jobs, wages and productivity, they’re justified by any evidence, good or bad. The Treasurer also talked about a “growth journey” and that “we’re looking for partners in this Parliament who want to go on that journey with us so we can set up the next 25 years of growth”.
But remember that the economy has just contracted substantially despite the Reserve Bank setting interest rates at historic lows and Hockey and Morrison, between them, pumping more than $110 billion in deficit spending into the economy between 2014 and next year. Kevin Rudd reacted to the financial crisis by boosting spending to 26% of GDP. Hockey and Morrison have had spending nearly as high already — 25.8% — and we’re contracting. A bit of trickle down from the executive washroom in company HQs isn’t going to do anything, even if you believe the myth of grateful companies lifting investment and handing pay rises to workers.
And beyond tax cuts for the world’s biggest companies, Morrison’s “journey” consists of the increasingly ridiculed myth of “free trade agreements”, an implausible fiscal plan and some protectionism to support a few thousand jobs. Under this deeply troubled government, the only place Australia is going at the moment is backward.