10 reasons the Australian economy is in a private sector recession

Treasurer Josh Frydenberg holding a press conference at Parliament House in Canberra following the release of GDP figures on Wednesday. Picture: Kym Smith

The facts are clear. The Australian private sector is in recession and investment has been cut back. Consumers are being forced to increase their savings and so have reduced their spending in many areas. The economy achieves growth by exporting to China and government spending which is at record levels.

For the most part the economic malaise has been caused by federal and state government politicians pandering to sectional interests.

I have prepared a list of ten action points that have caused the private sector and consumers to “go on strike”.

■ Our largest state, NSW is the country’s engine room, but it has a crazy property development approval system designed to create uncertainty and boost costs. This has driven many developers away from NSW so apartment building is now dominated by Meriton which says that it has around 7,000 apartments in the NSW planning system which it would build if it could get approvals. Meriton says those developments would generate over $2.3 billion in statutory charges and generate tens of thousands of direct and indirect jobs. Solution: Buy two return air tickets for NSW Premier Gladys Berejiklian: one to Melbourne and the other to Brisbane. There she will then discover how both states have smoothed their approval systems. She can come back and do the same thing to transform NSW. Meriton is now building apartments in Melbourne.

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■ Victoria has a deep energy crisis that makes both consumers and business nervous. Victoria creates an artificial gas shortage by banning access to its immense gas reserves – reserves that do not require fracking. These gas reserves are dissolved in water deep underground and would end Gippsland water shortages. Solution: Send Victorian Premier Daniel Andrews to East Gippsland to see personally the water shortage devastation his bans created.

■ We are not attacking the carbon problem intelligently. States erect wind and solar platforms without investing in the grid changes required or providing back up and they force coal fired generators into dramatically changing their output levels so forcing break downs. Its chaos and it pushes up energy prices and slashes business investment. Solution: We need a few long black outs to overcome the political spin. It’s harsh, but it’s the only way to teach some Coalition and ALP state politicians.

The Ararat wind farm in Victoria. Picture: AAP

■ Credit growth is now at a very low rate. The last time it slumped to current levels was in the period immediate after the GFC in early 2009. Part of the reason for this is nervousness in the business community. But it’s also related to the attacks on our banking system. The banks foolishly paid dividends instead of investing in their systems to comply with regulations but the current response of APRA, AUSTRAC and ASIC has them reeling. There is no predictability on how banks will approach any loan application. Non-banks are filling some of the gaps. The banks deserve their “medicine” but the attacks on them are part of the reason for the business community apprehension.

■ The Reserve Bank and the market analysts are all classical economists who were taught that lowering interest rates from very low levels will boost consumer spending and create investment. Wrong. It will boost building activity and that will be reflected in next year’s figures, but it forces retirees and pending retirees plus many younger people to save more; the reverse of what is supposed to happen. And the consequent house boom in parts of the market is causing APRA to consider tightening the credit screws. More uncertainty. Solution: Get Reserve bank people out of their Martin Place bunker.

■ Employment-creating small and medium business is increasingly about supply chains. The federal government has helped by speeding up its payments but too many large companies are not interested. The Business Council tried to improve the situation with a list of good payers, but it was useless. It looks like they have convinced the Prime Minister Scott Morrison to try another list. It will almost certainly have the same result. The only action that will work involves banning slow payers from government contracts. Solution: Give Scott Morrison Robert Menzies’ biography and Morrison will learn how Australia’s longest serving Prime Minister was very wary of large corporations and knew that the country’s prosperity depended on smaller enterprises.

■ On a similar tack, large organisations send out millions of unfair contracts each year whereby the large organisation can change the terms of the contract, but small enterprises have no such power. This curbs small enterprise employment financing and investment. The parliament tried to stop these outrageous practices, but the large enterprises told the politicians to jump and exploited loopholes in the act. Rod Sims has set out how it can be fixed but the government is too close to the large corporates. Solution: Same as above. I should acknowledge the Small Business Growth Fund as a step in the right direction.

■ I have written many tines about Australian Taxation Office thuggery. It must be tackled.

■ WA struggles because it does not receive its fair share of GST money. That needs to be fixed even though it will mean some of the overly pampered smaller states will receive less money.

■ Ross Cameron is one of Australia’s leading small business researchers and he says that actually mid-market business owners report that business conditions are quite good. But they hear negativity all around them (especially via the media) and sense a lack of confidence which affects their willingness to expand. In addition, business is tough. They point to low levels of consumer confidence, competition, challenges in finding appropriate staff, difficulties passing on price rises, a tighter (but not impossible) borrowing market etc.

A different and co-ordinated approach is required.