Josh Frydenberg’s plan to fight back from Covid collapse

Josh Frydenberg is preparing a five-year strategy for Australia’s fight back from the most severe recession since World War II.

Josh Frydenberg will gear his ­October 6 budget to focus on jobs creation, business innovation, ­industrial relations reform and cutting red tape. Picture: Gary Ramage

Josh Frydenberg is preparing a five-year plan to create millions of jobs and reignite business investment, to anchor Australia’s recovery from the most severe recession since World War II.

The Treasurer said the COVID-19 recession, the ­nation’s first since 1991, had wreaked havoc on the economy “like nothing we have experienced before” and warned of more pain as Victoria’s stage four lockdown and state border closures hold back economic recovery.

After the national economy contracted by 7 per cent in the June quarter, the second successive drop in GDP and largest on record, Treasury is forecasting negative growth in the September quarter before a rebound by the end of the year.

“Our record run of 28 consecutive years of economic growth has officially come to an end,” Mr Frydenberg said.

“The cause: a once in a century global pandemic. The effect: a COVID-19 induced recession. We didn’t go down the path of countries like Sweden, which put few restrictions in place. At the same time, we didn’t go down the path of countries like France, which adopted extreme lockdowns.

“We chose our own path and put in place $314bn of support for Australians to build a bridge to the other side of this crisis.”

Amid record falls in household consumption and business investment, Scott Morrison described the recession as “a devastating day for Australia” but vowed to put the country “on the road back” while ensuring it did not emerge as a dislocated nation.

“Australia will recover and Australia will grow again,” the Prime Minister said. “The jobs will come back and they will support the lives and livelihoods of Australians. Our plan for that to occur is to build on the resilience, strength and enterprise of the Australian people.”

Mr Morrison said the government’s plan would prioritise skills, the bringing forward of nearly $10bn in infrastructure projects and reducing energy costs to ­turbocharge manufacturing.

“We will make it easier for ­businesses to employ and to invest and to get Australians back into jobs, as the businesses of Australia lead the recovery, bringing the workers of Australia together with them,” he said.

With JobKeeper and other government support packages cushioning the economic blow, Mr Frydenberg will now gear his ­October 6 budget to focus on jobs creation, business innovation, ­industrial relations reform and cutting red tape.

“The road to recovery will be long, the road to recovery will be hard, the road to recovery will be bumpy,” the Treasurer said.

Mr Frydenberg said that, without the government’s rescue package, 700,000 more jobs would have been lost while the unemployment rate would have soared five percentage points higher. He argued Australia’s economic performance “sits amongst the top when compared with other developed nations”.

A record fall in quarterly household consumption of 12.1 per cent accounted for 95 per cent of the 7 per cent plunge in real GDP growth, showing Australians were unwilling or unable to spend a record boost to government social assistance payments. Over the year to June, consumption suffered its first annual fall on record, dropping 2.6 per cent.

Spending by households on discretionary items slumped by 25 per cent, in addition to a 17.6 per cent fall in spending on services, including transport, hotels, cafes and restaurants.

Australians were also using the tens of billions of dollars in COVID stimulus payments, alongside rent and loan repayment relief, to boost precautionary cash reserves, as the household savings ratio surged from 6 per cent to just under 20 per cent — the highest since 1974.

As consumer and business confidence sank to historic lows, private sector investment fell 6.5 per cent between March and June as companies halted spending. The decline in business investment was concentrated in the non-mining sector, which dropped by 6.9 per cent, while mining investment rose by 1.3 per cent — its third consecutive rise.

Anthony Albanese and the unions attacked the Morrison government for “cutting back” JobKeeper and JobSeeker payments in September and having “no plan for a way out”.

“The government needs to address the fact that there’ll be 400,000 additional unemployed, on top of the one million who are unemployed between now and Christmas,” the Opposition Leader said.

Labor Treasury spokesman Jim Chalmers said the government should not withdraw support during the “worst recession of our lifetime” and warned it was the “darkest day in the Australian economy for almost a century”.

Treasury is forecasting the Victorian lockdown will shave 2.5 per cent, or between $10-12bn, from economic growth. But there is growing optimism that other states, led by NSW, will record positive growth through to the end of September.

Deloitte Access Economics senior economist Sheraan Underwood said “only a handful of nations” — China Vietnam, Taiwan and South Korea — had seen less damage to their economies during the coronavirus crisis. “The underlying equation is simple. The greater success against the virus, the greater the success in protecting economies against the pandemic,” he said.

The $52bn in spending by federal and state governments over the June quarter — including $47bn in payments from the JobKeeper and Boosting Cash Flow programs — failed to arrest the slide in business investment and confidence.

Business Council of Australia chief executive Jennifer Westacott said there was a need to tackle major tax and regulation reform and warned business investment was in “free fall.”

The national accounts figures came a day after the government passed its JobKeeper extension legislation, cutting the $1500-a-fortnight wage subsidy payment to $1200 from the end of September for eligible employers. At the same time, the $550 a fortnight JobSeeker coronavirus supplement will be reduced to $250.