Scott Morrison and Josh Frydenberg want you to know that if the economy tips into recession and the budget surplus they not merely promised but claimed had already been delivered fails to materialise, it’s the fault of coronavirus.
It’s not their fault — despite the fact that they refuse to show economic leadership of any kind.
Yesterday, as share markets around the world slumped, the PM and the Treasurer called a media conference to say exactly that: it won’t be their fault, even though they don’t propose to do anything and certainly won’t undertake any fiscal response to help the economy.
The did not, of course, admit the surplus has vanished. They’re still hoping something will turn up on that front.
When Wayne Swan abandoned the surplus he had repeatedly promised in 2012, he came out and admitted it. It was the right call for a slowing economy, but he took his lumps every day for the rest of his treasurership because of it.
In contrast, Frydenberg and Morrison hid behind vague statements that Treasury hadn’t yet worked out the economic impact because of “considerable uncertainty” (that’s coming from the outfit that has got wage growth forecasts badly wrong for most of the last decade).
But here’s what we do know about the economic impact of coronavirus: it will inflict continuing misery on stock markets, with Australia today likely to follow two days of Wall Street and European sell-offs.
A fall of 2% or more on the local market will take the losses in the first three days of this week to more than $130 billion, wiping out any gains for super in the March quarter and the June half-year.
And that’s before the impact on the real economy, which is punch-drunk from multiple major failures: nearly a decade of wage stagnation, a productivity crisis, a private investment slump and a fiscal policy that continues to be tightened despite Reserve Bank and business pleas for more stimulus.
Morrison and Frydenberg couldn’t have done anything about coronavirus — in fact, Australian health authorities have handled the emerging epidemic well — but they have ensured that it will hit an Australian economy dead on its feet as a direct result of their failings.
And consistent with that, they propose to do precisely nothing about the economic impact.
“The Australian economy will depend a lot more on its domestic elements,” Morrison blithely declared yesterday. “But I can assure taxpayers … that we’re not a government that engages in extreme fiscal responses.”
Make that any fiscal response.
The problem with depending on “domestic elements” is that it’s those “elements” that are performing worst. Household incomes and spending are under siege from wage stagnation. Business is reluctant to invest.
The only thing the economy has going for it domestically is a return to surging housing prices in Sydney and Melbourne and vague hopes that will translate into happier consumers (those not providing Bank of Mum and Dad services to their kids who can’t get into the housing market, that is).
If there is no fiscal response, then that puts pressure on the Reserve Bank to provide a monetary policy response. And this is where the government’s fiscal pigheadedness has the potential to inflict serious costs. The RBA has already expended nearly all of its remaining capacity propping the economy up already.
If coronavirus had hit when the cash rate was still 1.5%, the RBA would have had plenty of scope to hit back with a couple of substantial rate cuts. Instead, because the government placed its fiscal ego ahead of the needs of the economy, the RBA has already fired three of the shots it had in reserve.
It’s a remarkable failure of economic leadership, one with real capacity to transform what might have been a temporary dip caused by a catastrophic summer and a serious health crisis in our major trading partner into an end to Australia’s near-30 years of economic growth.
Morrison and Frydenberg may as well go on holiday to Hawaii.
“I don’t hold a hose, mate,” Morrison said when criticised for leaving the country during the bushfire crisis. And evidently not a fiscal pump either.