MUNGO MACCALLUM.- Morrison’s Clayton’s Solution

Mar 10, 2020

The frazzled Josh Frydenberg more or less admits that his beloved surplus is about to become collateral damage; he will reluctantly kiss it goodbye.

The latest national accounts figures for the December quarter show that economic growth was not quite as weak as was expected and feared, which means that they can and have been spun as a triumph of resilience and recovery.

But the numbers are still pretty dire, sluggish at best with the certainty of worse to come in the March quarter, just in time for the budget.

ScoMo has brought precious breathing space as he wrangles a Clayton’s solution – the stimulus package which is not a stimulus package. Indeed, Morrison and his followers seem to have trouble even mentioning the word stimulus – perhaps it is considered too Ruddish.

The stimulus devised by Kevin Rudd, his Treasurer Wayne Swan and the Treasury Secretary Ken Henry in 2008 was certainly very expensive, very ambitious and in some details flawed, but it kept Australia out of recession – one of the very few countries in the world to do so.

This, of course, has to be Morrison’s overriding objective, and for all his talk of a moderate, modest, measured response, there can be little doubt that he will do whatever it takes to achieve it – if we need more pink batts, more school halls, they will be thrown into the mix as required.

The frazzled Josh Frydenberg has already upped the ante to promise billions rather than millions – which more or less admits that his beloved surplus is about to become collateral damage; he will reluctantly kiss it goodbye.

But it will be gone but not forgotten, remembered affectionately in the heritage listed ”Back in the Black” coffee cups now withdrawn from the Liberal Party website and his own unforgettable epitaph: “We’ve brought the budget back to surplus next year.” Ah, what might have been.

But for the moment, the emphasis is on restoring confidence – reassuring a nervous public that the government is in control. And given Morrison’s approach last week, which swung between the mindlessly stubborn over his indefatigable mendacity about sports rorts and the weird inconstancy in finally admitting that yes, he did ask Donald Trump to invite his pentecostal parson Brian Houston to a state dinner, making the sceptical trust him is not going to be easy.

This is particularly the case when he has just been given an unwelcome reminder of an earlier stuff up. The defence chief Angus Campbell told the senate that he (speaking for the defence establishment) had been ”discomfited” by Morrison’s advertisement boasting of his belated panic moves after he had rushed back from his secret Hawaiian holiday to deal with the escalating bushfire crisis.

“Discomfited” – not just made uncomfortable, but defeated utterly, routed, frustrated, thwarted, foiled, according to my dictionary. Hardly a ringing endorsement when ScoMo is about to embark on anew and even more daunting venture.

But at least he is working from his strong suit – marketing. The overwhelming need is to instill belief – to give the voters faith in the present and the future so they can, in Morrison’s words, stick together like some kind of national gladwrap convention. And in this sense the actual policies are less important than the pitch.

But there still has to be some semblance of substance in the sizzle, and this is where it gets tricky. Morrison and Frydenberg have effectively ruled out both cash splash – there may be something for pensioners and other retirees but no general bonanza. And there will be no big spend on infrastructure – the former for reasons already mentioned and the latter on the grounds that $4 billion in the infrastructure pipeline is quite enough for the moment – any more would take too long to have a measurable effect

There have been suggestions that smaller shovel-ready projects on a local level might be a sound move – for instance, funding a crash program for councils to fix potholes in the nation’s roads would be labour intensive, relatively cheap and hugely popular. But that is not the kind of headline ScoMo is looking for.

Much of the speculation last week was around incentives for business, in the form of direct grants, tax cuts or both, but that is being sold not in terms of procuring new investment but just allowing companies to hold the line until the crisis abates and conditions get back to normal – worthy no doubt, but hardly stimulating. It will not give a feeling of comfortable warmth in the hip pockets of workers, which is really what is needed.

Morrison says, correctly, that the coronavirus crisis is not like the GFC crisis and requires a different remedy. But as with almost all economic problems, the root cause is psychological – if enough people remain upbeat, they will probably drag the economy along with them. And obviously at present the populace is decidedly pessimistic: as the demented toilet paper chase has shown, the first and automatic reaction is to panic, to stick the cash firmly under the bed and keep it there until things improve.

And however much Morrison and Frydenberg can do to get the supply side moving, to encourage business to invest and innovate – something which it has singularly refused to do even when conditions have been relatively benign –- this will not help unless consumers are prepared to spend their money on the goods and services companies can provide. This was the basis of Ken Henry’s insight in 2008 when he advised Kevin Rudd: “Go hard, go early, go households.” And it worked.

Morrison says it would not work this time, and he may be right – certainly he has a far smaller arsenal than the one available to Rudd. But he will have to do more than just mouth the usual platitudes about how his stable and steady plan of management means all will be well. The public is already unconvinced, and the more ScoMo shouts from the cockpit: “there is no cause for alarm,” the more eager the passengers are to don their lifejackets and crowd towards the nearest emergency exit.

His government has got through the December accounts, but the March figures will be worse and those in June may be truly horrendous. It will be a long time before he can declare victory and leave.

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