Well it’s official. Australia has entered its first recession in 30 years with GDP contracting by 7% in the June quarter, putting an end to our global record. If you were born in 1992 or later (like me) then this is the first recession you’ve ever experienced and if history is anything to go by, this pandemic-induced downturn will be a once in a century event that you can tell the grandkids about.
Thanks to JobKeeper and JobSeeker, it may not feel like we’re in a recession just yet but once the money from the government stops and the banks stop allowing home loan deferrals, the reality will hit a lot harder. We will eventually also see the ramifications of this through paying higher taxes and less government spending in order for the government to pay off the $1 trillion in debt it racked up by spending $400 billion in stimulus packages.
Unemployment is currently at 6.8% but many people have given up looking for work or aren’t getting enough hours, leading Treasurer Josh Frydenburg to estimate the actual unemployment rate could be well above 10%.
Majority of the earnings reporting season has passed with numerous Australian businesses reporting significant losses which they can use to offset paying tax in future financial years. Similarly, investors have suffered serious capital losses in stocks and property that means capital gains tax won’t be doing the government any favours for the next couple of years as well.
Australia’s household savings ratio is at a peak of 19.8%, which in turn saw consumption fall by 12.1%. So the goods and services tax wont be much of a help either.
So, to summarise, the government has a lot of debt with no foreseeable means to pay it off. But the worlds gloomy enough right now so why am I telling you this? Because this is where the silver linings come in. A recession of this magnitude gives the Australian government a chance to rethink and reshape the way in which we manifest economic prosperity for future decades.
30 years ago Bob Hawke and Paul Keating were at a similar crossroad and they certainly went down the path less travelled. GDP had fallen by 1.8%, bankruptcies were ubiquitous and unemployment was 11%. They implemented policies focusing on long term economic reform at the expense of losing political popularity in the short term.
The floating of the exchange rate, opening up to global trade, enterprise bargaining and strict fiscal responsibility were all initiatives of the Hawke/Keating government. These revolutionary policies eventually cost the Labour party their government role, but the legacy they left behind would serve to prevent Australia undergoing a recession during the GFC.
So which path will Morrison and Frydenburg take? And how will the policies address the broader issues of climate change, independence from China and job security?
A critical aspect of this comes down to energy – more specifically how we source it and export it. The coalition has put out a technology roadmap this week but the results are a bit underwhelming to say the least.
The five technologies that the government believes will drive economic activity into the future are:
- clean hydrogen
- energy storage
- low-carbon steel and aluminium
- carbon capture and storage
- soil carbon
Sorry, wheres the investment in solar, wind and hydro? Unfortunately the government classes these as ‘mature’ technologies along with coal and gas, hence the government is going to leave these industries alone. Well not really leave alone, because the government still pays billions of dollars in subsidies to the fossil fuel industry according to the IMF. Why does an industry with a so called “competitive advantage” need so much money?
Essentially, the key takeaway from the roadmap is that Australia isn’t going to stop producing emissions but rather invest in ways to do it more efficiently or try and trap those emissions from entering the atmosphere. And just by the way, carbon capture and storage has no history of being successful on a commercial scale.
Its not exactly the revolutionary, recession busting plan we might have been hoping for. But the reality is Australia is abundant with resources and they provide livelihoods for thousands of families. Just look back to the federal election where the Adani coal mine was the key driver for Queensland voters. To shut it down (while it’s one of the only things keeping us afloat) would be economic suicide.
Despite the government backing a “gas led recovery” over a green one, business leaders, including UNSW success story Mike Cannon-Brookes, have backed an “A Million Jobs” plan that sees heavy investments into zero emission technologies.
Of course, renewables make sense in a social and environmental context. But I think politicians fail to see how it does in an economic context. Economics, at its core, is the study of how we gain a sufficient quality of life from a limited amount of resources. Coal is finite; it has an opportunity cost involved. Wind and solar are not finite, in the sense that if we utilise it today, it won’t impact those who utilise it tomorrow.
China, Japan and the EU are all investing heavily in low carbon emission technology. If Australia wants to future proof our economy, the dependence on exporting gas and coal will need to cease. Thankfully this roadmap places a priority on hydrogen and energy storage, concepts that will definitely be prevalent in the future.
It may not live up to the success of the Hawke Keating reforms, but there is still hope. The government is planning to release the 2020 budget in a couple of weeks time, where hopefully Frydenburg will introduce some taxation and labour force reforms that can enable us to achieve another 30 years of economic growth.
Meanwhile, state governments are fighting this recession with green policies as NSW, Queensland and Victoria are setting up renewable energy zones in regional areas in order to promote growth and confidence in areas that have undergone severe climate punishment. Over 6.3 gigawatts (equivalent to 4 coal power plants) of wind and solar energy will be installed across the country this year.
So while the recession may not provoke any meaningful climate policy from the federal government, businesses, state governments and consumers are picking up the slack, generating supply and demand for industries that have significant growth potential and offer a possible solution to our current economic crisis.