If 2020 was and remains a miserable year, economically there are more bright spots than we might have had any right to expect six months ago. And that’s down to Australian governments, and Australians themselves.
To their lasting credit, Scott Morrison and Josh Frydenberg, after some initial hesitation, embraced what should be called the Henry Doctrine of responding to an economic threat: go hard, go early, go households. They jettisoned the Coalition’s ideological obsession with fiscal rectitude and a decade of denouncing Labor’s enormously successful response to the financial crisis.
Yes, there was a particular Liberal spin to their response, much of which was delivered to households via businesses in the form of Jobkeeper. Plenty of businesses took advantage of that to reward executives and shareholders. But households received direct support with a boost to the JobSeeker allowance, which the government unwisely curbed as unemployment peaked and began to decline.
It also successfully intervened to cushion the impact on the construction industry of the pandemic via the HomeBuilder package. No expense was spared (except for universities, the ABC, and renewable energy, OK) and a deficit of $200 billion was taken as read with minimal quibbling even from fiscal diehards.
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The Reserve Bank (RBA) also stepped up to the mark, jettisoning its obsession with inflation that saw it cruelly and significantly lift interest rates in 1994 while close to a million Australians were still out of work. What little ammunition it had in terms of cash rate cuts were deployed, while it embarked on a huge program of quantitative easing and liquidity support for lending.
The RBA’s decision to abandon targeting of inflation expectation was also a marker that it had — at last — accepted that its routine undershooting of its inflation target in recent years wasn’t just some accident or passing phase but reflected a fundamental shift to a low inflation environment that posed very different challenges for economic policymakers.
That’s particularly the case when we realise that our understanding of inflation in Australia has been skewed higher by government excise on products like tobacco — and that it now contains items that are, for the moment, irrelevant to the cost of living here, like overseas travel, which the Australian Bureau of Statistics (ABS) is planning to re-weight down to almost zero in the current quarter CPI result.
That shift into a low inflation world has its casualties: the normally powerful seniors lobby has raged about the fall in interest rates to virtually zero, but their lobbying and complaining has fallen on deaf ears at a time when it has been young Australians who paid the price in terms of job losses and restrictions on activity.
But if the government’s response was strong, it is Australian households who deserve the bulk of the credit for a short and — compared to expectations — much less severe recession than expected.
There was plenty of stupidity and panic, and Sigmund Freud would have a field day with the utterly bizarre tendency to panic buy toilet paper at the first muttering of a COVID spike. But overall Australians held their nerve and, once they were able to, resumed spending with a high degree of confidence, while also curbing debt in areas like credit cards.
The non-collapse of consumer sentiment was most strongly reflected in the lack of impact on house prices, which defied yet another set of predictions of a housing price collapse.
That’s a key reason why, despite a recession, overall household wealth has actually grown this year. According to the September quarter financial national accounts, total household wealth in Australia increased 1.7% to a record high of $11.351 trillion. The September figure was up $340 billion from $10.991 trillion in the March quarter of this year.
That was driven by a 1.2% increase in residential assets, as well as a 5.4% rise in deposits, and a 1.1% rise in superannuation balances thanks to the continuing strong performance of the sharemarket, often in defiance of what was happening in the real world.
Part of Australians’ resilience has of course been that as an island a long way from anywhere else, we’ve been able to keep our borders closed — with dramatic impacts on tourism, yes, even if they were partly offset by Australians having to holiday domestically this year.
State border closures have also kept the virus in check, reflecting the mostly successful work of state governments to contain the pandemic. Even if the Victorian government’s failure was a tragedy, and the current outbreak in NSW might yet become one, at their worst, the kinds of numbers we saw in Australia were still ones that many other developed countries can only dream of.
If households and governments have performed creditably, the business community has done little to cover itself in glory, with scandal after scandal amongst Australia’s biggest corporations, a succession of chairs, directors and CEOs forced out and huge amounts of shareholder wealth trashed.
The bright spot in business has been the capacity of many retailers, in the face of financial destruction from the pandemic, to move rapidly online in a way that simply wouldn’t have happened without the virus.
Many employers have also discovered that they can transition to remote working and home working without a loss in productivity, another shift that would have only occurred over a much longer time frame pre-COVID — much against the offensive “get out from under the doona” lobbying of commercial property owners, the politicians they donate to and their media shills.
But for so many business, especially big business, it was same old same old. While welcoming of the very un-neoliberal fiscal and monetary policies adopted by the government and the Reserve Bank, many business leaders continued the broken-record demand for company tax cuts and industrial relations deregulation.
They also elevated profit over the lives of Australians, constantly demanding that border restrictions be eased and that lockdowns were unnecessary, taking to the pages of the Financial Review to demand that they be allowed to get on with making money and that the virus should be allowed to go on its merry way.
The reflexive neoliberalism of both business and the Liberal Party remains the biggest threat to the recovery now underway. The government has pinned its recovery hopes not on households but on business and the wealthy, funnelling vast sums of spending to businesses in the hope of encouraging investment, and to high income earners in the hope they’ll spend.
Its industrial relations proposals will crimp incomes and thus household spending, while its ideological vendetta against industry super funds risks wrecking a key source of funding for innovation and investment across the economy — as well are workers’ retirement incomes.
If that augurs poorly for 2021, so does the continuing disruption by the pandemic in Europe and the US, which are likely to see negative growth over the northern winter, restricting global growth.
On the positive side, Donald Trump will be out of the White House, replaced with someone who can actually be bothered doing something about the pandemic, and vaccines are on the way, even if they’ll take many months to start re-establishing what we used to call normality. Meantime, despite China’s efforts to belt Australian exporters, iron ore exports are generating massive revenue for Australia.
Good news should be coming. We don’t need to punish households and workers while we wait.