An already sick Australian economy shrank in the last quarter

Image from Kalkine Media

Contributed from Victoria

Australia’s economy shrank by shrank by 1.9 percent during the last quarter. No surprise here. Covid made sure of that, and New South Wales contributed most of it. Se the table below. Note that the Northern Territory amount to a small part of the Australian economy and New South Wales and Victoria make up most of it.

September quarter 2021 growth (%), seasonally adjusted

State final demand
New South Wales−6.5
Australian Capital Territory−1.6
Victoria−1.4
Western Australia0.6
South Australia1.4
Queensland1.8
Northern Territory4.0
Tasmania4.2

Table: Gareth Hutchens  Source: Australian Bureau of Statistics  Get the data

This is the third-largest quarterly decline on record.

But this is misleading in some ways. It includes all economic activity, like changes in the flow of money. If only the real economy is considered, the decline would look bigger. But even without considering this it was substantial.

Consumer spending declined too. People staying home was part of it and uncertainty about the future makes people more careful. Households are saving more than they were. This jumped from 11.8 percent to 19.8 percent, according to the Australian Bureau of Statistics.

Treasurer Josh Frydenberg dismissed the whole thing and suggested that the end of lockdowns and higher savings will translate into more spending, increased economic activity, and economic growth for Australia.

This is election talk, of course. Australia is performing worse than other EOCD countries, and more than one of them experienced greater disruption over the period from Covid. This suggests that there are other factors.

Part of this can be blamed on policy failures. It is true that the response to Covid in New South Wales was poor. The ending of the JobSeeker supplement and the imperfect JobKeeper payments made it much harder for people to take the needed precautions. If the results are the judge, there are failures in many areas of economic policy.

At the risk of sounding flippant to some, the Australian economy has been sick for longer than covid has been around and the reason is how capitalism is operating in this country. It is not only Marxists who are saying this. The call for a change is coming from many quarters.

Australia must consider an alternative approach. This must involve a bigger role for the public sector. Withdrawal and giving free reign to market forces isn’t working.

Economic sovereignty is needed. The reality is that the owners of the core parts of the economy reside overseas. They make the big decisions according to their interests rather than the interests of Australia.

Better integration of the economy, so that the various parts operate in harmony is necessary. Take the problem of thew housing and other bubbles, as examples of disharmony. Harmony also requires an upgrading of infrastructure, which provides better conditions for the economy to function properly. Most of all, a properly regulated fiancé industry is needed. This can ensure that investment goes where its needed.

Regulation of finance would be assisted by the creation of a public bank tasked with funding the most important needs and operating in the interests of Australia as a whole.

The cornerstone of public intervention and regulation of finance must be to improve the material conditions of everyone through the creation of new decent and permanent jobs and guarantee adequate income for those without jobs or unable to work. This will be the engine for growth.

This is a good time to consider setting down foundations for the rise of a social economy. This is a sector that does not operate for a single owner or set of absentee shareholders. It operates under the ownership, supervision, and participation of communities. They would be operating for shared interests.

Social enterprises need public start up financial and other support, to turn them into a means to create jobs and build local economies. The longer-term benefits are that they will contribute to building a democratic economy and provide an alternative to the private market.

It goes without saying, little is possible without major taxation reform that stops massive tax avoidance at the top end. All must contribute in proportion to their capacity. The scale of the tax evasion industry in Australia involves billions of dollars every year not being collected. This on its own would go as long way to fund the changes that are needed.

The alternative is to continue with business as usual, and we all know where this has taken us.

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