Economic Update: crisis that must not be wasted

“The Treasurer’s announcement today painted a stark picture of the extent of the deterioration of the economy and Australia’s public finances due to the COVID-19 crisis. While the Government is anticipating a recovery to take hold during the current year, the scars from the crisis are sure to remain for some time. Sustainable employment growth must now be the leading priority with particular emphasis on improving opportunities facing younger Australians,” Innes Willox, Chief Executive of the national employer association Ai Group, said today.

“Australia should not waste the opportunity provided by this burning platform. Sustainable employment growth will depend on higher levels of investment in infrastructure, housing and by Australia’s businesses. This will require a concerted response to the crisis by all levels of government and by the private sector. It is however an effort that will not just create jobs but also holds out the prospect of resurrecting the pace of productivity improvement and laying the foundation for a return to higher incomes’ growth.

“The depth of the crisis and long-term challenges ahead underline the importance of moving decisively on a range of policy fronts including in workplace relations and taxation and show how reckless it would be to wind back the temporary IR flexibilities which have helped keep businesses running and people in work.

“Today’s statement makes it clear that the economy is being propped up by unprecedented monetary and fiscal policy measures without which we would be faring much worse. Even with these supports, the economy is faltering: forecast employment fell by 4.4 percent cent in 2019-20 (compared with expected growth of 1.5 percent); non-mining business investment which was anticipated to pick up by 2 percent in real terms, is forecast to have fallen by a disturbing 9 percent; and household consumption which was forecast to rise by 1.75 percent, is now expected to have fallen by 2.5 percent; while the fall in GDP is put at 0.25 percent for 2019-20 compared with an anticipated rise of 2.25 percent.

“For the 2020-21 year and noting the considerable uncertainties over the course of the COVID-19 crisis, the Government is anticipating a modest U-shaped recovery from the latter part of 2020 strengthening into 2021 with employment expected to grow by a modest 1 percent and household consumption dropping at the lower pace of 1.25 percent.

“Non-mining business investment on the other hand is expected again to slide over 2020-21 with a further drop of 19.5 percent as existing capacity remains unused and as restrictions and disruptions put major question marks over new investment opportunities. While the outlook for mining investment in the current year is more positive (expected to grow by 9.5 percent ), dwelling investment – on which so much employment and activity depends – is expected to slump by 16 percent (compared with the earlier expectation of a drop of 3.5 per cent).

“The October Budget will be a key opportunity to get us back on the right track with new measures needed around tax, skills and training, regulation, innovation and business capabilities,” Mr Willox said.

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