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Would you like a recession with that surplus?

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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  1. Phil Pryor

    A coalition government of fringe idiots, liars, thieves, hypocrites, no hopers and B Joyce is in its own poo, having won unexpectedly and left occupying its own minefield, the profit if incompetence and dogma. Growth and other relevant figures are rotten, the outlook for us the ordinary citizen is depressing, the future for such as my talented grand children is poor, even threatening and the very planet is under threat also from brainless doggedness in pursuing stupidities, orthodoxies, dangers and selfish aims. 2019, when the fan got its brown coating…

  2. whatever

    Prime Minister Dutton is warning everyone that medevac legislation will be used to flood the country with African gangs. He will probably spend many more millions on some crazy stunt to rally his brain-dead OneNation Republic of NthQLD.
    I say, again, that this is a TeaParty takeover of the Nation. The TeaParty happened before Trump came along, and it was primarily the work of Murdoch’s FoxNews.

  3. OldWomBat

    No doubt it will all be labour’s fault – for not winning the election.

  4. David Bruce

    Christmas might be a good time to sharpen the pitchforks? All indicators are pointing to a recession in USA, Europe and China, so ScuMo and the Scumbags can blame others for Australia’s plight. Perhaps they are hoping the $200 billion Defence spend will prevent the worst effects of recession? Unless they spend it in 2020, it will only be a band-aid on an amputation!

  5. Yvonne Robertson

    It’s the only way things are going to change. My hope is that it happens quickly and has a powerful impact so that those complacent ‘what’s on Facebook/I’m off to the footy’ types will stop talking crap to one another about Liberals as sound economic managers and journalists will be unable to cover up the foul stench the Liberal/National policies they helped to create, are having. It’s the only way or else we are bound to repeat the the last 6 years where the decimation of our way of life is ratcheted up bit by bit in a flurry of agonizing incompetence, stupidity and greed.

  6. Jackie

    Have to say walking down memory lane during Bob Hawke’s Memorial Service, I was struck by the difference in the vibe of the country during his and Keatings times, with what we are enduring now.
    Bob was my MP in Wills in the late 1980s. I remember that as a time of optimism and excitement I had left NZ because the government there was similar to what we have now with the Coalition, they had frozen wages. And more, none of for the betterment of the people. So to arrive in Australia to such optimism and “can do” attitude was bliss.
    I know it wasnt perfect or all plain sailing, but honestly, these sub standard people running the country, and its whole attitude, is just so depressing.

  7. John Hermann

    Federal government budget surpluses are rarely a good idea. And contrary to what many mainstream economists believe, a government budget surplus is not sound financial practice. If you look at the relevant economic statistics, you will discover that regimes of federal budget surpluses have almost always been followed by recession. It pains me to observe a former Labor Treasurer and a former labor shadow Treasurer both announcing their ambition to achieve ongoing budget surpluses, Such practices – if ever implemented – would achieve nothing other than crashing the economy. To make matters worse, Chris Bowen engaged in an infantile boast that a Labor surplus will always be bigger than a Coalition surplus. In my view, that foolishness alone would justify removing him from the shadow Treasury portfolio.

  8. David Stakes

    And why increase the Pension age, as most are now a jobless statistic and with little chance of employment if they have been retrenched. If over 60 and retrenched you qualify for the pension no questions asked. To go thru the job active stuff is both stupid and demoralising.

  9. Matters Not


    announcing their ambition to achieve ongoing budget surpluses,

    Agreed. As does the current Treasurer (I think re ongoing). It’s a badge of honour apparently. Is it known what Jim Chalmers’ views are? (His PhD is NOT in economics but he seemed to sing in tune with Bowen.) What is the view of the Treasury Mandarins – off the record – because they are unlikely to publically contradict the Treasurer? Anyone know?

  10. Alpo

    We urgently need a BIG FAT Recession, to convince the voting morons that the Liberals and Nationals are completely clueless and they have been telling lies to them for more than two decades now.

    There is no other way. Any appeal to reason and clear thinking, any publications showing endless tables and graphs will be silenced by the pro-Liberal media (and now you have to add the ABC too!!!).

    The situation is completely hopeless and only a massive economic earthquake will be able to shake up the morons and finally convince them to kick the Liberals/Nationals/LNP out!

  11. Terence Mills

    What worries me is that they have this blind ideological obsession with cutting taxes way into the future and as we all know, this will inevitably lead to cutting government services.

    That fool Cormann is calling on Labor to “respect the verdict” of Australian voters at the election and pass the government’s three-stage $158bn tax cut plan.

    This is seriously crazy stuff at a time when our economy is showing severe signs of stress and did the Australian people give them a mandate for stuffing the economy ?

    I found it hard to watch Peter Dutton on Insiders this morning, the blatant lies and deceptions and did he actually say that the swap deal with the US on asylum seekers meant that we got just two, the criminals from Rwanda who had been accused of slaughtering tourists in 1999 and when asked if he knew where the men were living, Mr Dutton said: “I just don’t have any information on individual cases”.

    This man is a serious liability !

  12. Jack Russell

    I think we’ll get both … with fried bergers, and wedges on the side. There’ll be plenty of pickles too, but no beetroot. What an Eton Mess!

  13. Kaye Lee

    I would like a journalist to ask Frydenberg a straight forward question – if it comes to a choice between a surplus and government spending to keep us out of recession, which would you choose?

  14. totaram

    Kaye Lee: I can predict the answer, so no need for any journalists to risk their jobs by asking.

    (a) there is no recession now or later. The economy is strong, with record low interest rates, which as John Howard promised will always be lower under a coalition government.
    (b) government spending does not keep the economy out of recession.That was Labor’s lie.
    (c) Of course the surplus needs to be delivered to pay down Labor’s debt. There is no choice problem.

  15. Jack Russell

    How in hell does one contain such implacable disgust and fury? I’m too old to be burning up what I have left on these vile creatures who call themselves our government. I wish them nothing good.

  16. Kaye Lee

    Give us the courage to change what we can and the strength to endure what we can’t.

  17. Zathras

    Swan came repeatedly unstuck with his surplus predictions because the economy didn’t meet the Treasury’s forecast growth expectations but the then-Coalition Opposition refused to accept that as an excuse.

    Hockey later promised a surplus in his “first budget and every budget after that” but by then the debt-and-deficit-disaster mysteriously vanished from the media.

    The same and even worse thing is happening now to Freydenberg and I wonder if they will rely on the same argument as Swan.

    Chances are they will make increasingly savage cuts to services and social welfare just to “save face” – but will it be enough?

    A double-whammy of big cuts plus no surplus as forecast/promised will not be a good first year for the Morrison Government, especially as they shovel more tax cuts into the pockets of the wealthy while the poor continue to struggle.

  18. totaram

    Zathras: By the 3-sector identity, which always holds, unless Australia has a surplus on the current account, and/or the private sector takes on more debt, there can be no government surplus.
    The chances of those two events are very low, and so is the chance of a “surplus”.
    Wayne Swan apparently did not believe this and therefore came unstuck.
    I do not know if Joshie’s advisers and/or he know this.
    However, since no one minded the fact that no surplus was delivered in the previous six years, watch how no one will mind even if none is delivered now as promised. In fact no one has minded that Labor’s “debt and deficit disaster” has been doubled over the last six years. It’s all still Labor’s debt and no one questions that. The coalition will continue to be lauded as the “better economic managers”, no matter what happens. It’s all a matter of who controls the media.

  19. Kaye Lee

    Higher than expected iron ore prices might save them short term – we profited from the supply disruption in Brazil and falling stockpiles in China – but that is unlikely to last.

  20. Zathras

    If the “debt and deficit disaster” boogeyman has lost public and media influence and the terror of immigration and an imaginary armada of refugee boats fades as a primary concern for voters, what will be the new political frontier for fear-mongering and gouging votes?

    I predicted the day that Morrison brought a lump of coal into the Parliament that it was likely they were going to build (or taxpayer underwrite) a new coal-fired power station but there has been little indication of what’s next.

  21. Harry

    Completely agree Kay Lee. Virtually certain that if Frydenberg sticks to his surplus budget intention in the face of a gathering economic storm there will be a downturn, as John Hermann has also explained.

    Tax cuts can stimulate spending but the emphasis of proposed cuts is off-target. Ideally the tax free threshold should be raised so that those earning less than say $50k pa pay zero income tax. This approach benefits everyone to some extent, but the most will go to those who have the highest propensity to spend, lower income earners. Of course the Coalition’s package is highly political.

    The stimulus should not be restricted to tax cuts; plenty of other spending measures that could be needed. Reliance on the RBA is stupid but oh so neoliberal.

    Budget deficits represent net Investment into the economy and budget surpluses represent net DISinvestment in the economy. Net Investment is almost always required. The issue is the size of that net investment.

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