Awkward question for PM after JobKeeper

This time last year when COVID-19 was first spreading like wildfire across the world, there were fears that the virus would trigger the worst hit to the global economy since the Great Depression and that it could be the beginning of a long period of economic crisis.

Between March and June last year those fears were realised, with quarterly gross domestic product (GDP) dropping by a mammoth 7.3 per cent.

This represents a loss in economic activity more than four times larger than the entire 1990s recession which lasted a whole year.

The lockdowns took a huge hit out of GDP.
The lockdowns took a huge hit out of GDP.

 

But despite the enormous size of the hit to the Australian and global economy, the duration of the recession was one of the shortest on record. With the Australian economy bouncing back quite swiftly as lockdowns and COVID restrictions came to an end, at least on paper.

In October's federal budget, Treasury estimated that unemployment would remain significantly higher than pre-COVID levels for years to come. Forecasting that unemployment would remain around 6.5 per cent in the 2021-2022 financial year, before slowly declining to 5.5 per cent by the middle of 2024.

But unemployment forecasts did not pan out.
But unemployment forecasts did not pan out.

 

But these forecasts were not to be. In recent weeks, the Australian Bureau of Statistics (ABS) released figures showing that unemployment had already fallen to 5.8 per cent, just 0.7 per cent above its pre-COVID level in February last year.

This news came as a quite a shock to analysts who were expecting a roughly flat unemployment rate of 6.3-6.4 per cent.

Through an enormous $507 billion stimulus commitment, the Morrison government has engineered an arguably unprecedented recovery in confidence.

The Westpac consumer sentiment index and NAB business confidence index both recently hit decade highs, indicating that businesses and households are expecting a world-beating economic boom to follow in the coming months.

While skyrocketing levels of confidence in the economy and a labour market recovering years ahead of schedule are welcome developments, the swiftness of the recovery has raised some uncomfortable questions about the economy and the federal government's role in it.

The more than half-a-trillion-dollar stimulus package from the Morrison government not only avoided the Great Depression like outcomes the International Monetary Fund was warning of this time last year, but it has also so far avoided even a garden-variety recession.

Which raises the question - if it's within the power of the federal government to spend the economy out of trouble every time, why allow a recession to occur ever again?

If the government can simply step in at the first sign of trouble, preventing job losses and business failures, there could be immense pressure from the opposition of the day and the public to do so.

The JobKeeper scheme ended this week. Picture: Gaye Gerard/NCA NewsWire
The JobKeeper scheme ended this week. Picture: Gaye Gerard/NCA NewsWire


In some ways we are already seeing this type of pressure unfold. The federal opposition under the leadership of Anthony Albanese has been vocal about JobKeeper being continued, despite its large cost and widespread support for its conclusion.

Now the public has had a taste of a world in which the government prevents bad things happening to the economy, is there really any going back?

Despite a disastrous few months for the Morrison government, defined by the bungling of rape allegations within parliament, the Prime Minister still has an extremely high approval rating, although it has dipped.

While pining down exactly what factors are providing the Prime Minister with such high levels of support amid a storm of controversy and anger from parts the electorate is challenging.

It could be argued that the perception of the government being there to save people and "free money" falling from the sky are rated as extremely important to the government's political fortunes.

However, judging by the agendas of the major parties, they both seem to desire a return to the pre-COVID political status quo, which was defined by focusing on fiscal responsibility and driving for balanced budgets.

But when the next crisis or downturn comes knocking on Australia's door, it's hard to know if this commitment will remain steadfast when the rubber meets the road.

In the current crisis-driven environment, unemployment and recessions are now effectively political choices.

 

The government has shown it can spend its way out of crisis. Picture: Ian Currie/NCA NewsWire
The government has shown it can spend its way out of crisis. Picture: Ian Currie/NCA NewsWire

 

Jobs and businesses could be saved, all that is required is the political will do so and deal with the long-term consequences.

But there would be significant costs to the nation in time.

If the federal government was to abandon its budget responsibilities in favour of being the permanent political equivalent of a magic pudding, debt levels and borrowing costs would eventually skyrocket.

However, those consequences could potentially take years or even over a decade to manifest.

Given Australia's relatively low levels of government debt there is arguably a great deal of scope to pursue this type of interventionist agenda, at least in the short term.

With a federal election possible in a little over four months' time and projections that more than 488,000 jobs could be lost as a result of JobKeeper's conclusion, we may find out sooner rather than later how committed the Morrison government is to returning to the pre-COVID status quo.

While there are enormous costs to abandoning fiscal responsibility and eventual financial ruin for the Treasury, it's going to be a hell of a challenge explaining that to those who lose jobs or businesses that may have been saved with another wave of government intervention.

As we head into an uncertain future, the relationship between federal politics and the economy has been changed forever. Unemployment and business failures in a recession or crisis are now effectively political choices, for better or worse.

Whether or not our leaders will have the fortitude and courage to resist the easy way out will no doubt be a matter debate for years to come. But in the short term as the global recovery from the pandemic remains fragile, the level of moral hazard is extremely high.

Tarric Brooker is a freelance journalist and social commentator | @AvidCommentator

 

 

Originally published as Awkward question for PM after JobKeeper


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