Jun 042020

Australia is in economic recession. A 0.3% contraction in economic activity measured in GDP terms. Well….not officially quite yet, but the event is inevitable given the contraction of consumption since January 2020, huge increase in un and under employment due to the Coronavirus Pandemic. We simply await the June quarter economic results due July. The excuse we have for a Federal Government hasn’t helped the cause. In true conservative fashion, since 2013, we’ve seen nothing other than austerity, reduction in spending on social programs, stripping of funding for the arts and charitable organisations, reductions in public services, and of course, employment of the flawed “trickle-down” economic strategy. The rich continue to get richer, at the expense of the poor, to be plain.

The pandemic has genuinely upset the conservative status quo. Keynesian economic theory has had to be employed. Government spending has had to be instigated, and rightly so. We will see the conservatives try to scare us with doom-saying about debt, but the reality is anything but. Governments create money, and that is exactly what has happened over the past two months. Don’t be duped by talk of budgets and debt, etcetera. This is how governments handle Keynesian theory.

So how do we recover from Recession? Not quickly, that much is certain, and government spending is the only way. The Rudd Labor government used Keynesian theory to great effect during the GFC, 2008. There is a grave danger with governments splashing money around, however. Doing so fosters human greed. Rorters, shysters and conmen. Was the ‘Pink Batts’ saga flawed? In theory no, but in practice, it wasn’t we regulated to account for human greed. I fear the same is likely to occur with the current governments attempt at economic recovery. We – the taxpayer – are apparently going to dole out money to the building & construction sector. It’s to be aimed at homeowners so the funding will wind up in the hands of ‘tradies’, home builders and sub-contractors. Means tested, if you earn more than $125,000/annum as an individual – I’m guessing taxable income here – then you’re out of luck. If as a couple you earn more than $200,000/annum, ditto. If the property you wasnt to build or renovate is worth more than $1.5m….go away. Investors…..same….go away, so this is aimed at owner-occupiers. The average median Australian income – pre-coronavirus – was $86,268/annum. That’s mean average, so there will be many well under that sum, and some well over that sum. I find myself asking how many folk who fall into the mean average wage bracket can afford a mortgage on a $1.5m home? If your household income is $200k/annum, you won’t be allowed to borrow more than 40% of your disposable income. That’s a lot different to saying, “oh yes, I can afford it”, banks are contracting their lending conditions right now, because hey…..recession.

As with just about everything this government does of a fiscal nature, this spending measure is aimed primarily at those who are:

  • still working and earning an income;
  • earn a household income well above the mean average, and;
  • don’t have a really big mortgage

in other words……the more well off in society. Certainly not those in the so-called ‘gig’ economy, the arts sector, casually employed or reliant upon the soon to be shut-down, Jobkeeper funding. The main question on my mind is just how this spending will be regulated. Nothing in this regard has been released so you can bet your bottom dollar the costs of reno’s is going to skyrocket.

Any government spending during a recession is welcomed, but it needs to go to the sectors of society that will use it quickest and most efficiently. Funding business and relying on the fraudulent ‘trickle-down’ strategy won’t do the job. I’m dubious, to say the least.

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