While the prime minister offers another economic vision today to the press gallery in Canberra, there’s a broader context for one of the themes of his speech (at least as reported ahead of delivery), that the economy has to be weaned “off the medication” of support “before it becomes too accustomed to it”.
Morrison might be referring to the government’s stimulus and support packages to get us through the current pandemic crisis, but the economy has been on “medication”, and much stronger, since 2008. Labor pumped around $190 billion of deficit spending into the economy between 2008 and 2013.
Since then, up until February — and despite the Coalition’s claim that it would produce a surplus in its first year and every year after that — the current government has pumped around $170 billion into the economy. The dramatic increase in deficit spending this year and next will send that to over $300 billion.
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Despite that fiscal stimulus, the economy has struggled. The last time GDP was over 4% annual growth was under Wayne Swan. It has only exceeded 3% in three quarters since then — insufficient to generate enough jobs to get unemployment below 5%, which we last reached in 2011. In 2018 and 2019, as the government cut its deficit spending back to around $10 billion, aiming to reach surplus, growth slumped to average 0.5% per quarter
And growth slumped despite ever looser monetary policy from the Reserve Bank (RBA). The cash rate hasn’t been above 2.5% since the brief restoration of Kevin Rudd. It hasn’t been above 2% since Tony Abbott was PM. Even 1.5% proved too high last year. The RBA now suggests it will remain at 0.25% for three years. And that’s in addition to a major program of quantitative easing to keep bond rates and business lending rates low.
Medication? The economy has been on fiscal and monetary life support for years.
Not so according to the government — the economy was “strong”, it insisted before the last election; these days, Treasurer Josh Frydenberg frequently states that growth was increasing at the end of 2019. It wasn’t.
Even an immediate, miraculous recovery from the pandemic will only restore the economy to its comatose state of late 2019, when what were at that stage emergency low interest rates accompanied regular calls from the RBA and business for fiscal policy to be re-upped to stimulatory levels.
Accompanying that has been a slump in productivity growth since its surge under Labor, to the extent that productivity actually went backwards last year.
The government’s refusal to accept that the economy has been stagnating even with fiscal and monetary support — and, for that matter, the media’s reluctance to report that — lends a surreal element to the current debate about the post-pandemic economy. Will there be a new era of big government? Yes, the left choruses; no, call the last of the neoliberals from the pages of the Financial Review.
But the era of big government never went away. The last time spending as a proportion of GDP was below 24% was — again — when Swan was treasurer. It was above 25% until Malcolm Turnbull became prime minister and remained at 24.6% of GDP in 2019. What will it reach this year? 27% 28%?
Tax to GDP has risen steadily under the natural party of big government in Australia — the Liberals — from 21.3% under Labor to 23.8% last year. While the government insists that prior to the virus, we had a strong, small-government, low-tax economy, the economic debate is proceeding under false pretences.
It’s now nearly three weeks since we normally would have had a budget, complete with its lock-up silliness (which, hopefully, we’ll never have to endure again). We’ve had a fairly pointless economic statement from the treasurer, and today’s Press Club effort from the prime minister, but we’ll have to wait until next month for a proper economic update and until October for the 2020-21 budget.
Given we’ve emerged from the lockdown much more quickly than expected — so much so that Treasury has massively downgraded its forecast expenditure on JobKeeper — there’s no excuse for delaying the budget until summer is almost upon us.
If the government really is serious about some sort of economic reset, four-plus months of uncertainty and thumb-twiddling, punctuated by the occasional vague speech of policy aspiration, simply isn’t good enough.
An August budget — just like olden times — should be achievable. Malcolm Turnbull readily pulled the 2016 budget forward — indeed, he didn’t even bother telling treasurer Scott Morrison first. Morrison should bring the 2020 budget forward, and at least go one better and let Frydenberg know in advance.