The Government has failed to respond to Australia’s continuing economic downturn despite both increasing unemployment last measured at 720,000 and underemployment of 1.14 million.
Reserve Bank Governor, Philip Lowe, has pleaded with the Government to dump the planned budget surplus and provide fiscal stimulus to revive the economy. Presumably speaking for the Government, Treasurer Frydenberg has ignored this advice and in two recent ABC interviews with Leigh Sales on 7.30 boasted about the budget heading for a surplus. He and the Government are apparently willing to ignore the serious economic consequences of inaction.
In desperation, Reserve Bank Governor Lowe has again reduced interest rates in another attempt to spur some economic growth despite past disappointments. If it encourages investors seeking capital gain to purchase more existing homes it will further exacerbate the housing problem for young home-seekers.
There are only two ways of achieving employment of those seeking work. If the private sector does not respond to reduced interest rates, and the Reserve Bank has now gone beyond what is reasonable, the Government is the only other mechanism available. And the only limit to what the Government can sensibly borrow to expand spending to employ those seeking work is the capacity of the existing infrastructure including the skills retraining facilities such as the Tafes and universities. These borrowed funds are exactly the same the private sector could borrow except the Government also has the back-up of the Reserve Bank.
The Government’s refusal to expand spending is both prolonging the deprivations of over 1.8 million workers and their families and depriving the economy of urgently needed improved social facilities and infrastructure. With record low interest rates, the short-run cost to the budget would be minimal. In the longer run, as the economy recovers, tax revenue increases and payouts to the unemployed are reduced enabling a balanced budget to be restored. It makes no economic sense to prioritise a balanced budget over seeking full employment.
The current substantial downturn in the construction industry offers the Government an ideal opportunity, in cooperation with the States, to solve our housing problem. With the skilled labour now available it could readily commence funding an increase in social housing for the estimated 120,000 homeless. And it could establish, without cost to the budget, a not-for-profit National Public Housing Corporation to help house the many thousands of young people currently in shared housing desperately seeking to buy or rent their home at a reasonable price. Most of their parents purchased housing before the huge escalation in housing prices mainly resulting from negative gearing and reduced capital gains-tax, which encouraged investors to purchase housing for capital gain.
Of course fiscal stimulus could be employed in many other important areas including urgently needed improvements in public schools, restoring funding cuts to the universities, Tafes and scientific research, expanding and improving public health facilities where waiting times for emergency treatment are often a national disgrace, and especially building essential new dams and pipelines.
Harold Levien writes articles on economic affairs. He founded and edited the monthly current affairs journal Voice, The Australian Independent Monthly many years ago. It is no longer published