The latest figures on the health of the Australian economy as shown in the June 2015 quarter National Accounts continues to paint a gloomy picture. Meanwhile, the spin that Treasurer Joe Hockey and Finance Minister Mathias Cormann offer, is priceless.
It seems the thrust of their argument is that it doesn’t matter how bad the figures are, they would be much worse under the previous government, so that means it’s all good and no one needs to worry. Surely if they were that confident in their policy direction, they would do better than that.
When Labor left office, unemployment was 5.8%. It is now 6.3%. Annual GDP growth was 2.5%, it is now 0.2%, the $A was .92c against the $US, it is now 70c. But what is more concerning is that real net national disposable income per head, fell 1.2 per cent, the biggest slide since the GFC. We are now 5% below the peak at the height of the mining boom in 2011.
So, if you feel you have less money to spend and that things are continuing to get worse, you are right and you are not alone. The only reason we showed any growth at all in the June quarter was due to a 41% increase in government defence spending. This is what it took to deliver a 0.2 growth result.
Overall government spending increased by 3.4% which also delivered growth of 0.2%. Business investment took another slide of -0.7% and has declined 6.8% over the past year. So what does this tell us about how the economy is being managed?
Clearly, if government spending in the June quarter increased by 41% and this, on its own, delivered a growth factor of 0.2%, then it becomes obvious that when the private business sector is in decline, only government spending can fill the void.
Unfortunately, 0.2% is way too low to have any positive impact on employment. Getting people back to work requires more spending and much bolder vision than that. So, did we hear a plan along those lines from either Hockey or Cormann?
Hockey’s response to the numbers was, “The fact is that the economic growth we had in the last quarter was in line with expectations. Of course it bounces around from quarter to quarter but it was in line with our overarching expectation.” It’s not bouncing around, Joe. It’s bouncing down.
Cormann told Leigh Sales on 7.30 Wednesday night, “Employment growth is quite strong, much stronger than when we came into government, more than four times as strong as when we came to government. And indeed, the unemployment rate is now expected to – well it’s now lower than what was anticipated in the past on the back of better labour market conditions. So, our economic plan is working.”
Forgive me for asking, but how does one claim a win on employment growth when the unemployment level has risen by 0.5%? How does one preach austerity when current government spending is the only thing that is keeping the economy growing? How can one claim their economic plan is working when the current growth rate cannot reduce unemployment?
What the June quarter figures tell us is that if we are to avoid a recession, government spending needs to increase significantly on projects that create employment. We need to employ 800,000 people. Only by employing people can we increase demand, kick-start an increase in production, increase tax revenue and motivate business to invest.
None of this increase in spending has to mean an increase in debt. None of it. As a currency issuing government we are not spending constrained. Additional spending targeted to wealth creation is not inflationary. Two of our major competitors, Canada and Brazil are now in recession because they have failed to adapt to a downturn in demand.
We have a real opportunity, right now, to kick-start an ailing economy by undertaking “Overt Monetary Financing” by the Reserve Bank. We put that money into building roads, railways, public housing, investing in renewable energy technologies, all of which would bring down unemployment, reduce welfare dependency and improve living standards not to mention the general health of our citizens.
Overt Monetary Financing (OMF) amounts to permitting sufficient deficit spending aimed at increasing employment and production. Importantly, no public debt is issued, no taxes are raised, interest rates would not rise and a job guarantee could be introduced immediately.
For this to happen we need leaders with vision, we need leaders of the calibre of Robert Menzies, Gough Whitlam, Paul Keating. Right now we have a government so constrained in their thinking, so inept, so ideologically blinded, they cannot see the wood for the trees.
As Nero fiddled, Rome burned.