HomeCoronavirusAustralia's record-breaking three decades of economic growth grinds into reverse

Australia’s record-breaking three decades of economic growth grinds into reverse

Paul Tung has never seen anything like it before.

At 30 – he turns 31 this month – the former airline sales manager is too young to remember the last time Australia’s economy went backwards in the early 1990s.

He’s been laid off by airline Virgin Australia, which is teetering on the brink of collapse after it was grounded by government travel bans, and because the entire travel sector has been devastated by the coronavirus crisis he has so far had no luck finding a new job.

So far, some of the damage has been cushioned by increased unemployment benefits, and the support of his partner, Kevin, who still has a job.

But with an estimated 1.2 million people thrown out of work due to the coronavirus economic shutdown, Tung worries what will happen to him and others in the same boat if benefits revert to their usual levels in September, as Australia’s conservative government plans.

“I’ve still got a mortgage,” Tung says.

“If we can’t actually have a secure job by that time, we are quite screwed up.”

‘They might be out of work for a while’

Last time Australia’s economy went backwards Tung was, as he says, “being born”. Mobile phones weighed as much as two kilos, hair metal was still big and George Bush – the older one – was president of the United States.

Since then, the country has enjoyed a run of 29 years of uninterrupted economic growth, fuelled by China’s apparently insatiable demand for coal and iron ore, that put the memory of recession, unemployment queues and boarded-up shopping strips beyond the reach of an entire generation.

Through drought, flood, the dot.com crash and even the global financial crisis, during which it was the only developed economy not to shrink, Australia continued to bloom – although for the past few years its citizens have suffered from stagnant wages growth, with the spoils of success instead flowing to company shareholders.

Now, young people are being hit the hardest by the downturn, with the bulk of an estimated 1.2 million jobs lost, ripped from industries including hospitality, the arts and retail that tended to employ large numbers people in their 20s or early 30s.

Gross domestic product shrank by 0.3% in the first three months of the year, and the economic forecasts are gloomy at best, with economists expecting the next set of numbers will be much worse.

And it is by no means clear that the federal government will repeat the rescue of a decade ago, when it pumped money into the pockets of householders and the broader economy, after emergency spending ends in September.

The early 90s recession, which got under way in late 1990 and lasted about a year, was the result of the end of the long, flashy economic boom of the 1980s coming crashing to a halt.

Bob Hawke and Paul Keating in Sydney in 1988. The boom times of the 1980s would give way to a crash in the early 90s. Photograph: Patrick Riviere/Getty Images

As dole queues and flannel shirts replaced corner offices and power shoulders, the then treasurer, Paul Keating, famously said it was “a recession that Australia had to have” – a claim the veteran economist Saul Eslake dismisses as an attempt to rewrite history.

Eslake, a former economist at several big banks including ANZ, says that while the growth of the economy since then makes the 1990s slump look small, it devastated people’s lives.

“It took a long time to get unemployment down, and that’s why people now use the term ‘scarring’,” he says.

“The longer people remain out of work, the harder it is to find work, and if they do find work it’s usually at lower wages.”

Because today’s recession was caused by a deliberate choice to shut down parts of the economy, rather than a financial collapse, Eslake is confident that more of those laid off this time – as many as three-quarters – will get to go back to their old jobs, even if at reduced hours.

“But there’s another cohort that won’t get their jobs back,” he says.

“If they’re in tourism or something like that, that’s going to be the last sector to recover so they might be out of work for a while.”

Eslake says the Australian economy’s golden streak of nearly 30 years was propelled by four factors – high migration, a strong relationship with major trading partner China, a housing boom and good macroeconomic policy.

But he fears all but good macroeconomic policy are now out of reach.

“We’ve had 30 years with those four things helping us along, with wind in our direction,” and three of them aren’t going to be there.

‘They’re reluctant players’

Adding to the grim picture, the Australian economy was already weak before the coronavirus crisis hit.

Growth was weak – last year, the country fell into in a “per capita recession” because economic growth was less than the increase in population – and since the end of the mining boom wages have been moribund, rising just 2.1% in the year to the end of March.

Inequality has increased since the early 90s, according to Australian Bureau of Statistics data compiled by the government’s in-house thinktank, the Productivity Commission.

So far, a conservative Coalition government has given no hint it wants to address these problems. Instead, much of the talk coming from the national capital, Canberra, has involved painting ideas such as cutting corporate regulation and reducing the power of Australia’s already-struggling union movement as solutions to the economic crisis.

Despite a historic aversion to deficit spending, the ruling Liberal-National Coalition has so far pledged a total of more than $130bn – more than 10% of the Australian economy – to keep things going through the shutdown.

The prime minister, Scott Morrison, and the treasurer, Josh Frydenberg, are now under pressure from a restive backbench to stop spending.

So far, the only economic stimulus program that goes out beyond September that the government has committed to is a relatively small $688m committed to funding home renovations.

Former treasurer Wayne Swan, who guided Australia through the global financial crisis, says the government won’t stay the distance on economic stimulus.

Former treasurer Wayne Swan, who guided Australia through the global financial crisis, says the government won’t stay the distance on economic stimulus. Photograph: Tracey Nearmy/AAP

Wayne Swan, who was treasurer of the Rudd government during the 2008 global financial crisis, dismisses the program as “boutique” and “fucking ridiculous”.

He says the government should learn both from his success during the GFC and the failures of his Labor party to deal properly with the 90s recession.

“The mistakes that have always been made, going back to the great depression, is that particularly conservatives, flick the switch to austerity too early,” he says.

He says his stimulus program restored confidence because of its “long tail” of construction projects, which gave business confidence to invest.

“They’ve got none of that, none of that,” he says.

“They’re reluctant players in a game they don’t believe in.”

‘I feel bad every day’

Eslake thinks that in the end Swan’s government poured too much money into the economy, but he reckons that at the beginning of an economic crisis there is no way governments can know how bad it will get.

“You’re either going to do too much – or at least announce too much – or do too little,” he says.

“Knowing that you’re going to make one of those mistakes, in these circumstances the right mistake to make is to promise to do more than it turns out you need to do.

“If you do that you can always stop or wind it back once it’s clear that you’ve done too much. Whereas if you don’t do enough, not only will what you do not have worked, but you will have undermined confidence in your capacity to come up with the right amount when you try a second or third time.”

Meanwhile, the economic disaster is playing havoc with Tung’s life.

He was planning to get married to Kevin, “but we’ve had to postpone that, not only for the social distancing but also because of the finances”.

He feels bad that Kevin is now the sole breadwinner for the family and their dog, a 12-year-old Alaskan Malamute named Tyrese.

“The emotional effect is something we have to look into as well,” he says.

“I feel bad every day.”

Source link

- Advertisment -