The Morrison Government has begun pulling back stimulus measures, despite the coronavirus outbreak still wreaking havoc across the globe. Tarric Brooker takes a look at the economic warning signs.
AS THE Morrison Government resumes its push for a return to a “balanced budget”, despite the coronavirus outbreak still wreaking havoc across the globe, we are reminded of an old episode of The Simpsons.
In the episode, the Simpson’s home town of Springfield is hit by a hurricane, during which Homer unwittingly leaves the shelter to go outside during the eye of the storm, believing the worst was already over, despite repeated warnings from his daughter Lisa, until the storm comes back and he is almost blown away by the wind.
Australia now arguably finds itself in a similar position to Springfield. Our economy is in the eerie calm of the eye of the storm, as JobKeeper, government stimulus programs and mortgage deferrals cushion the blow of the crisis.
Unfortunately, these months of relative calm have seemingly had the same effect on the Morrison Government as they did on Homer Simpson. Prime Minister Scott Morrison has recently confirmed that his Government were pressing ahead on balancing the budget and returning it to surplus, despite the fact that the number of new global coronavirus cases is hitting record highs and China is showing a worrying trend toward a second wave.
Economists have been warning the Morrison Government of the threat of a “fiscal cliff” in September/October as more $12 billion-a-month in stimulus measures expire.
The Morrison Government, however, is seemingly not only paying little heed to these warnings but also potentially removing stimulus measures early — as evidenced by childcare workers having their JobKeeper support payments cut off in July.
What does the data say?
Despite the growing sense of positivity about the economy from the Morrison Government, most economic indicators continue to remain extremely poor.
This month’s jobless data from the Australian Bureau of Statistics (ABS) has the headline unemployment rate at 7.1 per cent. However, the true rate of unemployment is likely far higher once Australians who have left the workforce are factored into the numbers.
When these workers who were in the labour force back in March are factored in, the true jobless rate is more likely around 11.5 per cent.
The Australian Industry Group’s construction and services indexes are both at record lows, despite the pace of contraction in the respective sectors slowing slightly.
These key internal indicators of the economy, along with a long list of others don’t support the Morrison government’s optimism that it’s time to begin removing support measures and returning to their usual focus on attaining a surplus.
The difficult reality
Unfortunately, Australia now finds itself between a rock and a hard place. On one hand, the economic crisis beyond our borders has seemingly only just begun and is likely to continue for the foreseeable future. On the other, the Morrison Government appears reticent to engage in further large-scale stimulus measures in the coming months, just as the warning of a “fiscal cliff” is predicted.
Within the Coalition party room, there has long been discontent about JobKeeper, JobSeeker and other stimulus measures, with some MPs including Barnaby Joyce and Jason Falinski calling for an earlier than scheduled end.
In the coming months, the ongoing lifting of coronavirus containment measures and likely improving retail sales – due to billions of dollars a week in stimulus measures – are going to create a mirage of a much stronger economy than we actually have, even as other key indicators continue to flash warning signs.
Hopefully, the Morrison Government doesn’t make the same mistake as Homer Simpson in the hurricane, thinking that the crisis is over prematurely. Because if they do, we may all end paying the price for their overconfidence.
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