(Image: AAP/Mick Tsikas)

What will it take to get this do-nothing government to show some economic leadership?

Maybe, after two thoroughly rotten sets of economic data this week, and Scott Morrison’s “please stop talking about my government’s corruption” coronavirus pandemic announcement yesterday, the penny is dropping that something serious in the way of fiscal stimulus is desperately needed for an economy that is not so much punch-drunk as out on its feet.

Wednesday’s data for construction work in the December quarter was the first blow. It showed total construction fell 3% in seasonally adjusted terms, and was down 7.4% over 2019. Residential construction was worst: down 4.6% in the quarter, and 12.8% in the year — over one-eighth. Non-residential building fell by 3.4%; the crucial engineering category — that’s private and public infrastructure — was down 0.5% and 6.8%. Whither the infrastructure boom?

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Yesterday brought worse news: private investment fell 2.8% in the December quarter, a multiple of the fall that had been expected by economists. The fall was led by declines in the mining and building sectors, frustrating hopes for a long-awaited pick up in spending. During the December quarter, business investment totalled just $28.5 billion and followed a downwardly revised 0.4% fall in the September quarter.

That is, the investment slump about which the Reserve Bank has been publicly fretting dramatically worsened in the three months to December, accelerating in the lead-up to Christmas.

Remember this is before the emergence of coronavirus, which the government seems to want to blame for what is expected to be a significant economic slowdown. This was when the investment environment, in the words of the Reserve Bank, featured “accommodative funding conditions for large businesses”.

Keep that in mind going forward as the government insists everything was fine until the Chinese ruined everything with their virus.

The only rays of light were spending on equipment and plant, which rose 0.8% (that will help the GDP for the December quarter, due next week) and the mining sector, where there’s an increase in spending intentions this year as well as next year.

Otherwise, the investment numbers are so rotten, in dollar terms they’re back to where they were in 2017.

The difference is, back then, the Turnbull government had just pumped $37 billion worth of deficit spending into the economy for 2016-17 and was putting another $20 billion in for 2017-18, including major new spending in health and education, which ended up propelling the big jobs surge that marked Turnbull’s time as PM. When private investment is around $30 billion a quarter, that makes a major difference to economic activity — a whole extra quarter, in effect.

Now the government is still, officially, aiming for surplus (in fact, it says it has already delivered it…), which would be a contraction.

But after outright dismissing any fiscal stimulus in Wednesday’s coronavirus media conference, Morrison changed his tone slightly yesterday, with a heavily caveated statement: “If we are to take any actions here and that is still subject to advice from Treasury, which has not confirmed their advice, that any such measures would only be effective if they were targeted, modest and scalable. And we are quite aware of where the virus is impacting in particular sectors more than others.”

Get that? Treasury might advise the government, and that advice might be to take action, and the government might take that advice, but any action would be modest and aimed at specific sectors.

We know the kind of sectors the government is good at targeting: electorates it wants to win, and its fossil fuel donors. Instead of a stimulus program, we could end up with yet more porkbarrelling and handouts to mates. Maybe Trevor St Baker should draw up a list of coal-fired “stimulus projects”.

Too harsh? The central bank and senior business figures have been calling for fiscal stimulus for well over a year amid growing evidence of an economic slowdown caused by the government’s wage stagnation policy and a productivity crisis it has tried to ignore. Even the likes of John Howard and Barnaby Joyce joined business in urging the government to lift the Newstart allowance.

But it stoutly resisted, and even mocked, all such calls. Whether driven by a small government ideology, its fiscal ego or because it was simply lazy, isn’t clear. The risk of such pigheadedness was always that either stagnation would persist and deepen, or an external shock would hit the economy when it was at a weak point.

Well, now both have happened, and the government is still umming and ahhing and looking to blame a virus. It has been criminally negligent in its economic management and it continues to be.

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Peter Fray
Peter Fray
Editor-in-chief
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