No, at first glance Australia’s December quarter economic scorecard wasn’t “better than expected”.
It just wasn’t “as bad as feared”.
Beyond that simplistic first headline of 0.5 per cent GDP growth, it was actually every bit as bad as anyone dared admit, as Euan Black has explained.
That’s only a minor part of the miserable news this week for a country facing a crisis with an unprepared government that’s low on trust and whose key economic policy remains artificially inflated real estate prices.
Yes, 0.5 per cent looks better than the 0.3 per cent that was feared, but the difference between those two numbers came down to a rise in inventories, which the Australian Bureau of Statistics’ national accounts treat as a positive.
In good times, a rise in inventories indicates businesses stocking up in expectation of better sales.
These aren’t good times.
The higher inventories represent stuff businesses weren’t able to unload and will find hard to unload, stock that will crimp their manufacturing and ordering in subsequent quarters. (Toilet paper and hand sanitiser excepted.)
The national accounts show the private sector shrinking aside from the mining sector.
Domestic demand grew by only 0.1 per cent despite the best rise in discretionary consumption in 18 months.
And to yet again underline the bleeding obvious: This was before the worst of the bushfire’s impact and before the novel coronavirus had even registered.
With weak private capital investment and stagnant real wages, the latest figures confirm what everybody should have known for at least the past month: The Australian economy was already weak before it had take on COVID-19.
So what plan does the government have to deal with the emerging economic crisis? It doesn’t have one.
Oh, it’s working on it. Any day now.
Scott Morrison said he has a plan – but if he did, we would have seen it by now.
Like the bushfire crisis, the Morrison government appears to have been asleep in the barn and now is suddenly flapping its arms and scrambling into action as the horses gallop off down the track.
Up to this point, the federal government’s policy for encouraging stronger economic growth has been to rely on ever-cheaper money reinflating the housing bubble.
Yes, folks, we’re the country with close to the most expensive housing in the world, global champions of high household debt – and the key to our economic future is making housing even more expensive with even greater levels of debt.
Higher prices, eventually, are supposed to encourage developers to reverse the downturn in construction and increase the number of real estate sales.
That, in turn, is supposed to get us all spending again and we’ll live happily ever after, along with a bit more help from the mining industry.
There are two small problems with this plan, as the RBA has admitted: It’s not expected to begin to work until the second half of this year; and it still won’t be enough to make much of a dent, if any, in our unemployment and underemployment as far as the eye can see.
There’s also the little matter that this asset inflation plan inherently makes the rich richer, worsening our wealth inequality.
But it was the only plan in town while the government persisted with chasing wages suppression and its political Holy Grail of a budget surplus.
Tax breaks miss the point
Now Mr Morrison says there is to be another plan.
We have no idea of what, but the early signs are not encouraging.
The #ScottyfromMarketing “targeted, modest and scalable” slogan indicates it won’t be much – that the depleted Treasury officials are being expected to come up with policy for a few specific industries.
The Liberal Party’s fear of doing anything that looks like Labor’s anti-GFC stimulus means it is likely to be focused on companies rather than consumers.
The Coalition’s love of tax breaks suggests tax cuts or holidays for business will be favoured.
The government’s track record on bushfire relief doesn’t point to quick delivery anyway.
All of which would miss the point.
For if COVID-19 is such a threat to the global economy in general and the Australian economy in particular that it has forced an emergency US Federal Reserve Board rate cut and pushed the RBA to suddenly make a cut it said it would only do if unemployment was heading in the wrong direction, then the immediate challenge is stimulating consumption and maintaining employment – not cushioning select profits and encouraging longer-term investment.
The threatened health crisis becomes an economic crisis if unemployment rises.
A business that has crashing income, such as those in inbound and outbound tourism, doesn’t keep on staff because there’s a tax cut in the offing.
To survive, such a business must concentrate on reducing costs, not after-tax profits.
Stimulus that concentrates on companies also misses out on the reality of the gig economy, especially in tourism-related hospitality.
It misses out on sole traders – the one million Australians who are at least nominally independent contractors – a great many of whom don’t operate a company structure.
Most of all, it doesn’t concentrate on stimulating consumption, the weakness of which has already been shrinking private investment.
If we were seeking “normal” stimulus for our soft economy, ramping up the immediate tax write-off for businesses, improving R&D grants and extra infrastructure investment in areas not already running at capacity would be good – but the RBA has signalled that more than “normal” stimulus is what’s needed right now.
Raise the rate
As every galah, pigeon and goldfish in the pet shop has been saying, the quickest and best policy for quickly boosting consumption – a policy that should be in place without this crisis – would be to humanely increase Newstart.
Failing such humanity, the best big, broad and brave employment driver the government could manage would be to immediately bring forward its second round of income tax cuts presently not planned to take effect until 2022-23.
Whatever Scott Morrison’s latest cunning plan might end up being, all that has happened so far looks suspiciously like an embarrassing strong-arming of the RBA and the major banks.
Politically, that might look good for the government over the short term. Over the longer term, in the interests of good governance, it does not.
It smells rather like the Treasurer’s office was briefing select journalists with the suggestion of the weights being dropped on the RBA.
And stenographers at the LNP Gazette (AKA The Australian) recorded on Wednesday that the big four banks had cut rates by the full 25 points under threat of the government hitting them with an extra tax if they did not.
(Be still, Ben Chifley’s grave; on its current trajectory, the Coalition might yet start outright nationalisation of key industries.)
Lower rates won’t help
As argued here and explained by the RBA before, monetary policy operates with lags.
There’s no quick support for consumption or employment in the current environment from mortgages being paid down a bit faster or people being encouraged to borrow more to bid more for housing.
There’s even a good chance that before a possible, small beneficial effect from this rate cut arrives, the government will have forced the banks to cut their dividends, thus reducing the income of a rather large number of retail investors, reducing consumption.
On the edge of forcing ZIRP (zero interest rate policy) on Australia, Scott Morrison and Josh Frydenberg could have scored an own goal.
Finally, whatever cunning plan eventually surfaces from the government’s brain trust, there’s a bigger trust question remaining.
It’s been explored in this space before and Leigh Sales put it to the Prime Minister on Tuesday night’s 7.30: When trust in leadership has been lost through secrecy, evasion and dishonesty, it’s hard to conjure public faith and confidence in any plan.
When FDR famously stopped a run on the US banks during the Depression with his “nothing to fear but fear itself” broadcast, it worked because the population at large trusted the president.
With the loss of trust in this Prime Minister, it will need to be a very sound and cunning plan indeed.
Oh well, we’ll always have toilet paper.