Government spending is keeping Australia out of recession, just as this week’s feeble GDP numbers tallied 7 consecutive quarters of negative growth. Michael Pascoe reports on the moaning business lobby.

A funny thing happened after Wednesday’s weak national accounts figures: a large part of the economic commentariat poured scorn on government spending and investment for keeping the economy afloat. 

If you read the Australian Financial Review, alias the Business Council Bugle, you could be forgiven for thinking what Australia needs now is a good old-fashioned recession. You know, extra hundreds of thousands of people out of work, mortgagee auctions aplenty, small business bankruptcies through the roof. 

That’d teach those uppity workers to forget about pay rises and be grateful for a cheap casual shift if they were offered one. 

On top of giving plenty of voice to those wanting interest rates higher for longer, the AFR is busy bemoaning governments doing what the private sector is not. That is, investing in the nation. 

The neocons remain amongst us,

decrying the simple Keynesian reality of government activity doing the lifting when the private sector does not.

As the ABS national accounts made very clear, it was the public sector that kept Australia’s gross domestic product growing in the September quarter, albeit weakly. GDP rose 0.3 per cent in the quarter to make it 0.8 per cent growth for the 12 months. 

Private consumption was flat in the quarter despite pay rises and two months of tax cuts while a rise in housing completions resulted in private investment scraping a 0.1 per cent gain, so effectively flat. 

And that’s where the government sector came to the economy’s rescue with a 6.3 per cent increase in public investment after three quarters of falls and a 1.4 per cent increase in government consumption with state and local governments doing most of the spending and investing. 

So does government get any praise for preventing the headline GDP joining per-capita GDP in the red? Of course not. 

Instead, the neocon commentators echo shadow Treasurer Angus Taylor in claiming government spending is “crowding out” private sector activity. 

Oh please. Outside the resources industry that effectively runs its own race, fast or slow in keeping with commodities cycles, Australian business investment has been lacklustre or worse for more than a decade. 

One of the funnier quotes in the AFR GDP coverage came from an anonymous CEO complaining about “rock-bottom productivity growth that makes it hard to get growth without creating inflationary pressures”. 

It’s funny because it reflects the usual BCA whinge that somehow the government is responsible for private sector productivity growth. By definition, the average CEO is average. In the Australian corporate zoo, given the collective scorecard, they are very average indeed.  

Productivity growth happens or doesn’t happen on every individual shop floor, how it’s managed and led, how the workforce is engaged or not. Neither Treasury nor the RBA has a magic productivity wand to wave. 

And if you’re naïve enough to swallow the disproven chant that cutting taxes would boost productivity, I have several bridges and a Laffer Curve to sell you. 

As it happens, there has been no productivity growth over the past year. As measured by GDP per how worked, it fell 0.5 per cent in the quarter to be down by 0.8 per cent for the 12 months. 

But non-mining profits kept motoring along, which might suggest something about how the average business doesn’t feel the need to make the investments required to lift productivity anyway. 

Lazy business leaders and their shills routinely conflate productivity and profits. Businesses outsourcing work to cheaper labour aren’t increasing their productivity, only their profits. 

And then there’s our supposedly new improved RBA, which is increasingly looking decidedly unimproved, keeping rates higher than they should be when faced with a trend of seven quarters in a row now of per-capita recession, hung up on a productivity number which, like “full employment”, they can’t grasp while inflation has fallen back within its mandated target. 

Speaking of which, the national accounts’ implicit price deflator for private consumption (the fancy name for the accounts’ price index) came in at 0.7 per cent for the quarter. Multiply by four for a rough annual figure and you get 2.8 per cent – within the RBA’s target range. 

For the 12 months, the deflator dropped to 3.6 per cent from 4.4 per cent at the end of the June quarter, further evidence of inflation trending down as it should, further evidence of the RBA looking like becoming the only central bank that demands to have inflation at its target before taking the foot off the economic brake. 

An interest rate cut won’t make business more productive, but it would make it easy for business to invest to become more productive, if said business can be bothered to. 

A lesson from the free money being handed out during COVID was that small-to-medium businesses, once they had ordered a new ute and a coffee machine, reacted much like Australian individuals by investing in property rather than the business. So it goes. 

But, hey, don’t let that stop the usual suspects from blaming governments for doing the Keynesian thing to keep the economy growing. 

Sure, it’s also dependent on population growth, but it’s still growth. How good it is to be in business in Australia where, if you do nothing, your market keeps growing anyway. 

And imagine the howls from the same usual suspects if governments at all levels had stepped back, had kept reducing public investment, had not increased spending, had abruptly slashed population growth. 

No, we would not have seen a surge of private investment with the animal spirits rampaging through the jungle. We would be in a recession by all definitions. 

Oh well, then the RBA might start trimming interest rates.

https://michaelwest.com.au/damned-if-you-do-jim-chalmers-cops-the-blame-for-no-recession/

YOURDEMOCRACY.NET RECORDS HISTORY AS IT SHOULD BE — NOT AS THE WESTERN MEDIA WRONGLY REPORTS IT.

         Gus Leonisky

         POLITICAL CARTOONIST SINCE 1951.

PLEASE DO NOT BLAME RUSSIA IF WW3 STARTS. BLAME YOURSELF.