Have Scott Morrison and Josh Frydenberg lost their nerve on the economy?
Having apparently spent more time leaking the details of its construction industry package than actually preparing them, the government yesterday released its “HomeBuilder” policy to, at best, tepid enthusiasm in some quarters and harsh criticism in others.
Ignoring widespread calls, including from the Master Builders Association, for a big investment in social housing, the package aims less than $700 million at a particularly narrow sweet spot — families under $200,000 a year building a house up to $750,000 or undertaking a large renovation in houses up to $1.5 million in value.
The fact that the package expires in December suggests that anyone who hasn’t already got a builder lined up and got their DA at or near the finish line will miss out. That is, this won’t create much in the way of additional spending, just reward middle-income families who happen through sheer good luck to have been planning a build or major reno at this exact moment.
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The package has been denigrated as middle-class welfare, which misses the point that the intended beneficiaries are construction industry workers who face unemployment as economic uncertainty smashes an already weakened building industry.
The correct criticism is that far more bang for the taxpayers’ buck could have been achieved with some spending on social housing, provided it was given to the states on the condition that there be no reduction in pre-COVID levels of social housing funding in subsequent years.
But it also looks far too small, as if the government was caught betwixt and between — the desire to address widespread and well-evidenced concerns about a coming collapse in construction demand, especially in the residential sector, on the one hand, and fiscal conservatism and a desire to keep the construction sector package of the same order of magnitude as packages for other sectors, like aviation.
Keeping construction going is important mainly because it employs so many people. At nearly 1.2 million, it’s our third-biggest employer, so even a small contraction in demand puts tens of thousands of people out of work.
And because of the time lags involved in construction, those jobs won’t bounce back quickly. That feeds into the wider economy, especially via perceptions of unemployment and the risk of future unemployment, which directly affect spending decisions.
It’s those spending decisions, big, small and in-between, that will be central to the recovery.
Households have been keeping their wallets closed for years, due to wage stagnation, with direct consequences for economic growth. That problem accelerated in the March quarter. “Household final consumption expenditure fell 1.1%, the first decline since December 2008, detracting 0.6 percentage points from GDP,” the ABS reported. “The through the year result was -0.2%, the weakest since March 2009.”
That flows through into investment decisions. While big business and buffoons like Jennifer Westacott insist company tax cuts are needed to lift investment, the real impediment to investment is that consumers aren’t spending enough to justify it.
“Non-mining business investment fell 1.7% this quarter and 6.6% through the year, reflecting weakness across both non-dwelling construction and machinery and equipment purchases,” the ABS said. Tax cuts will not fix that.
Getting households spending again — getting consumers confident enough to spend — is thus crucial, and the government has the most important role in that process, especially around indicating a preparedness to do whatever is necessary to support the economy, something which it did a reasonable (if far from perfect) job in its first three packages of doing.
Yesterday’s package doesn’t pass muster on that score.
This is the lesson of the post-financial crisis period, when governments, especially in the UK and Europe, too rapidly abandoned fiscal stimulus — even in some cases switching to austerity.
That left economies struggling to recover, and even those that did, like the UK, were mired in wage stagnation or even wage declines that impoverished workers, while cuts to government services instituted by governments like David Cameron’s alienated them.
What’s also damaging are the public arguments of self-interest corporate leaders like Woolworths chairman Gordon Cairns demanding workers — low-income workers, the most marginal in the workforce — accept pay cuts via cuts to penalty rates.
Typically, The Australian Financial Review wrote up his demands without mentioning the hard evidence that when penalty rates were cut in the wake of the Productivity Commission’s industrial relations report, it didn’t create a single new job.
Big companies — especially ones like Woolworths, which coined during the lockdown — demanding wage cuts will only increase the sense of uncertainty among workers.
NSW Treasurer Dominic Perrotet is doing the same with his punitive wage freeze — which will be a real wage cut, despite low inflation — for NSW nurses, police, teachers and emergency services personnel.
Hold the line and punish workers, the Financial Review editorialised today. It’s exactly the attitude from business and their cheerleaders that will keep the economy mired in recession when we need to get households opening their wallets.
How could the government have better planned the construction stimulus package? Let us know your thoughts by writing to [email protected]. Please include your full name to be considered for Crikey’s Your Say column.