Josh Frydenberg wants to be the first Treasurer to deliver a surplus in over a decade.
But there is an increasing risk that he will also be the first Treasurer to deliver a recession in almost three decades.
Despite Josh’s assurances that “the fundamentals of the Australian economy remain sound”, recent signs are not looking good.
Last year, quarterly growth dropped from 0.9 per cent in the June quarter to 0.3 per cent in September and down further to 0.2 per cent in December.
The unemployment rate rose from 4.9 per cent in February this year to 5.1 per cent in March and 5.2 per cent in April. Underemployment has surged to record highs.
This increase in unemployment occurred despite 28,000 new jobs being created in April, which Josh assures us is due to a higher participation rate. Something that is never mentioned is that the age at which one can access the aged pension has increased for anyone who was born after 1 July 1952, adding a significant number of people in their mid-sixties to the labour force.
Job ads have fallen, particularly in the real estate, construction and manufacturing sectors.
As Michael Janda at the ABC reports:
“Many industries dominated by the private sector have been laying off workers at a rapid clip — over the year to March, manufacturers shed 62,500 jobs, construction firms nearly 50,000 and retailers nearly 25,000.
But that was offset by a mammoth 164,200 increase in public administration and safety, plus strong gains in the largely publicly funded health care and social assistance sector.
The concern is that this isn’t sustainable. Not only is it questionable whether the public sector will continue its hiring frenzy, but it seems increasingly likely the private sector job losses will get worse.”
Economic growth is at a decade low, residential construction is declining, consumer spending per person is going backwards, real household incomes have gone nowhere for several years and the savings rate is already near its lowest levels since the global financial crisis.
Whilst the business share of national income is around multi-decade highs, the wages share is near multi-decade lows.
Josh tries to suggest that the greatest headwinds come from the US-China trade war, conveniently ignoring the fact that our domestic economy survived the GFC with continued growth and comparatively low unemployment and debt, in part due to direct government stimulus to our domestic economy.
For him to “faithfully” deliver on his promise of ongoing surpluses, the government will have to remove more money from the economy than it injects. If it sticks to its plan to deliver tax cuts, that already reduces the pool of revenue.
If reduced government spending in pursuit of a surplus leads to job losses, combined with falling house prices and very high household debt, we could be in a whole heap of trouble.
Would you like a recession with that surplus?
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