Treasurer concedes recession
As the government prepared to roll out its housing stimulus package on Thursday, Josh Frydenberg was asked if the already-conceded recession could become a depression.
He avoided a direct answer.
“Well, we’re absolutely focused on getting as many people [as possible] back in a job,” the treasurer told Sky News.
“So, a ‘no’ to a depression?” host Peter Stefanovic asked again.
“Well, we recognise that this is a challenging time, but we’re absolutely focused on ensuring the recovery, and the recovery is under way,” Frydenberg said. “And we are much better placed than many other nations.”
He was treading a careful line between realism and optimism, both of which are required to engender the confidence so crucial to avoiding the economy receding further.
But the interview came just a day after the national accounts showed Australia’s economy had contracted by 0.3 per cent in the March quarter and the treasurer had confirmed the inevitable – that the country is, at the very least, in its first recession in 29 years.
“Less than 100 days ago our nation was on the edge of an economic cliff,” Frydenberg began. “The number of coronavirus cases was increasing by 20 per cent per day. Treasury were contemplating a collapse in GDP of more than 20 per cent in the June quarter. It was an economist’s version of Armageddon.”
The policy and public responses to the coronavirus pandemic averted a worse situation.
But things are still bad.
When asked if Australia is in recession, the treasurer could have fallen back on the term’s technical definition – two consecutive negative quarters, not just one.
“Well, the answer to that is yes,” he said instead.
He avoided revealing Treasury’s June quarter prediction, only saying it would be “even more severe”.
Frydenberg said on Wednesday that the government’s planned budget update had been deferred from June to July 23, after Treasury’s JobKeeper review was complete and before the rescheduled budget in October.
Federal Opposition Leader Anthony Albanese has accused the government of deliberately pushing the update beyond the July 4 byelection in the marginal New South Wales seat of Eden-Monaro.
As the Covid-19 restrictions ease, and the economy reopens, the government is unveiling targeted stimulus packages, starting with housing.
The HomeBuilder construction package will grant single owner-occupiers earning less than $120,000 and couples on up to $200,000 a $25,000 subsidy towards building and renovation projects if they sign contracts before year’s end.
Homes must be worth no more than $1.5 million and the projects must cost between $150,000 and $750,000. Swimming pools, tennis courts, outdoor spas and saunas, garages and detached sheds are not eligible.
Work must start within three months of the contract’s signing and only involve builders unrelated to the owner who were licensed and registered before June 4, 2020.
The housing sector and business groups have welcomed the package.
But its parameters have prompted some to brand it middle-class welfare.
The federal opposition backed supporting the sector, in principle. But Labor and the Australian Council of Social Service highlighted the omission of any social housing element.
Frydenberg said the government already has a billion-dollar loans scheme for social housing. Prime Minister Scott Morrison said social housing development was a state responsibility.
“We all work together,” Morrison said. “The federal government doesn’t have to do every single part of the process.”
In setting the eligibility criteria, the government is seeking to minimise the risk of a bubble that could later burst.
By insisting on already-verified builders and having homeowners invest their own money in the projects, it also wants to avoid both the risk of shoddy work and comparisons with a controversial Labor government stimulus scheme rolled out during the 2008 global financial crisis – the home insulation scheme.
Some are already comparing it with another – thus far, positively.
Former Gillard government adviser Stephen Koukoulas, a research fellow at progressive think tank Per Capita, says the housing package and another planned for the arts are “not bad ideas”.
“I have a huge amount of sympathy for those sorts of policy ideas,” he tells The Saturday Paper. “It’s a derivative of the Building the Education Revolution from a decade ago. Instead of building school halls … they’re going to be renovating kitchens and bathrooms.”
But he warns that without extending and tapering the JobKeeper and boosted JobSeeker payments, the economy faces another “cliff” in September when they, subsidised childcare and the banks’ mortgage payment freeze are all due to expire.
Koukoulas says more will be needed to boost wages and business investment.
“When the animal spirits are as low as they are now, it takes more than a few bucks in your pocket.”
He predicts yo-yoing national accounts, with a June quarter plunge expected to reflect the pandemic’s past peak but a possible return to positive territory for September.
As debate rages about Australia’s recession, Frydenberg says his “r” word is “recovery” . The word the government is really trying to avoid starts with a “d”.
The Merriam-Webster Dictionary defines a depression as a major business cycle downswing, characterised by sharply reduced production, widespread unemployment, slumping or stalled growth in construction and big cuts in international trade and capital movements.
A recession may be limited geographically, while a depression can occur across the world.
It’s a galling label, and the government judges its utterance would only undermine the confidence game of economic recovery.
This article was first published in the print edition of The Saturday Paper on Jun 6, 2020 as "Passive recession".
A free press is one you pay for. In the short term, the economic fallout from coronavirus has taken about a third of our revenue. We will survive this crisis, but we need the support of readers. Now is the time to subscribe.