How long before Depressionberg realises he’s crashed economy?

The Depressionberg Unstimulus will take a little time to wreck the joint. This week’s payrolls plunge is probably early evidence that the radical fiscal tightening embedded in the budget, somehow missed by all and sundry, has already hit the  economy hard:

The dramatic plunge in SME payrolls is precisely what we expect as JobKeeper is ripped away:

SMEs will find infinite ways of doing things more efficiently and with less people once the taxpayer wage subsidies roll off.

So, as the Depressionberg Unstimulus evaporates $70bn from income supports between Q3 and Q4 and then another $30bn between Q4 and Q1, and adds only a couple of billion in tax cuts to offset it, we can expect unemployment to climb. How much and how fast? Probably nowhere near as badly as we need it to in the statistics. Why? Because ABS numberwang will hide it behind part-time hours:

This part-timer surge will intensity as the Depressionberg Unstimulus incentivises both automation via accelerated depreciation and, in particular, the sacking of many full-time workers to be substituted with part-timers on the JobRorter wages subsidy.

There will also be the Victorian opening up to aid the recovery for a quarter or so. Its reckoning with the Unstimulus does not come until Q2.

Sadly for all, this will help paper over the economic wreckage of the Unstimulus and provide succor to the Government so that it does not recognise the damage it has done until even later. It may well, therefore, persist with its gutting of JobSeeker and the resumption of regular programming for insolvency laws in Q1.

Summing up, the economic damage bill for Depressionberg Unstimulus will become obvious more slowly than the actuality. That punts us beyond what is going to be a very bad Christmas sales season. A weak Christmas itself might provide a spur to the Government to reconsider further stimulus in the new year but, by then, we’re pushing deep into February. At that stage, the Government will be preparing for the May budget and is unlikely to want to be seen to be panicking about its own Unstimulus, especially since its failure will be blamed on all manner of other things than the Government by the Coalition echo chambers at The Australian and AFR.

Even worse for Depressionberg, most of his accelerated depreciation and tax cut unstimulus is scheduled for beyond June 2021 and he’ll think that they will turn things around imminently. It won’t occur to him until well into FY21 that supply-side incentives aren’t going to work when there’s no demand. It may not even occur to him then!

Therefore, I can see us going nearly a year before the Depressionberg Unstimulus is recognized as a total failure requiring a bailout with more demand-side spending. But by then, I expect iron ore to be back below $80 and the Government to be wondering why its deficits keep widening but the economy remains weak anyway.

That raises a few more sticky questions:

  • there’ll be no early election with that kind of economy in 2021;
  • Labor will be in the game next year especially as wages keep falling in real terms;
  • despite whipping the virus, the Aussie economy, profits and asset prices will lag any global recovery.
David Llewellyn-Smith

Comments

  1. A guy I know, executive management level, has just been put on a 4-day week. Headcount everywhere is going to be slashed over the coming months as revenues come under pressure. Many firms will have held back expecting a recovery, I reckon, but when it doesn’t transpire …

    • As they should. Shareholders have taken a huge pay cut.
      Allen Joyce took a 83% pay cut and gave execs a 70% pay cut.

      • happy valleyMEMBER

        What did AJ get the previous year? ~$20m? – Are you telling me he didn’t put away a couple of bucks for a rainy day?

        • I think around $9m
          Anyway 83% pay cuts should be a model for how executive Australia handle this crisis.
          And cancel all their non-cash benefits.

          • happy valleyMEMBER

            And what about a pay cut for pollies? Haven’t heard of any gubmint leading from the front on this one, but then again pollies work so hard and are underpaid. LOL.

          • Poor Alan Joyce, having to live on $3.4 million a year.

            Even if he has to pay 50% in tax, that’s still $1.7 million dollars a year.

            Yet Australia has a prime minister who is surprised that ABC staff are not happy about pay cuts – and they are on a hell of a lot less than $1.7million

          • Government of Western Australia certainly leads in this regard! $1000 per year pay raise only, three years in a row already and two more years to go at least. Surplus budget!

            Oh, wait…. you meant actual “politicians” taking a pay cut? HA HA HA HA HA

    • He must be thrilled with the extra day available to hit realestate.com real hard. He’ll make more in that one day than the other four!

    • Presumably you aren’t one of the people who will end up broke in a “let it wash through” situation.

      • +1
        All this lit-it-rip “creative destruction” BS is just false bravado from people with no skin in the game

        • Or perhaps the difference is that certain people have seen it coming and prepared as best they can while others would prefer the status quo of endless bailouts?

          The wash-out is going to happen whether you like or not — it’s just a matter of when. We can continue to kick the can or take our medicine sooner rather than later. As someone with young children I say lets get this done now — of course, we all know that won’t happen as there isn’t a pollie in the world brave enough to call it.

      • Wrong, been there twice before and on the edge again. Fond memories of the recovery post 80/90s bust, it was a fantastic time to build a useful economy and everyone had a fair crack at it, even those who took a hit. We’ve been in an economic porpoise since the GFC and vast amounts of stimulus have amounted to nothing and will continue until we take out the trash. Think of your kids FFS.

        • Fair enough. However I take issue with the apparent argument that the GFC stimulus (which only really came in two waves a decade + ago) is much to blame for our current slothful economy. I’d argue the government’s deliberate pump priming of RE and the banking sector along with horribly dysfunctional energy policy and mass immigration are far more to blame for Australia’s current lack of economic productivity than stimulus handed out to try and keep people employed in the short term.

      • There will be business and individuals who will be impacted by the structural changes that NEED to happen regardless of covid19 and regardless of the way governments deal with covid.

  2. Jumping jack flash

    Indeed. They still haven’t addressed the actual problem. The 2 trillion dollar elephant in the room which costs Australia somewhere around 100 billion dollars of potential spending every year.

    Until they fix that massive leak or double down on debt and provide the missing debt growth in whatever ways they can, we’re going to continue to bleed demand.

  3. At about that time, when it all dawns on the dullard duo, we will have to deal with the rampant spread of CV with all the horrors that that will entail for some of the older and co-morbid citizens but the economy too.

    The vaccine silver bullet is a long shot as is the apparent national isolation strategy.

    • Yep. ‘Learning to live with it’ is the most probable outcome. Frankly, if C19 is as dangerous as people suggest (even to the healthy) then perhaps this is curtains for the human race. Hunkering down isn’t a life.

    • Not sure about debt jubilee but cash for the masses, for sure. I guess that’s a back-handed debt jubilee ..

      • Jumping jack flash

        No jubilee.
        The banks would not allow it. Nor would anyone who directly benefits from everyone being indebted. There’s a lot.

        Cash to the masses to obtain debt with when debt is absolutely and utterly essential to have is equivalent to an interest rate cut in the New Economy.

  4. You’ll note from the first graph that the tightening hasn’t touched the big end of town which is clearly all that matters.

    • Jumping jack flash

      Yes, my initial thoughts were that it is a recession for the poor and underprivileged.

      The ones who matter will not experience a recession. They will have ample choices for labour and be able to reduce fixed costs as a result to boost their own incomes.

      And unlike the previous depression where the fact that underpaid workers couldn’t afford the things they produced which caused a collapse of demand at the bottom, these days the workers simply take on the debt they need to buy those things, and that fixes everything.

      Until they aren’t eligible for the correct amounts of debt to keep it working.
      But never fear, we have interest rate cuts and “stimulus” aimed at debt eligibility.

    • I think you’ve find that’s a timing thing. Big business are more than capable at cutting labour when they want to, but so far some have been essential services, so they have been spared on the first round effects. But the stimulus reduction out of this budget has all the subtlety of a wet fish and will hit consumption and therefore general activity that feeds all businesses. Which will become evident in 2021. It’s just that the small business are like small boats, quickest to be thrown around when the storm approaches. Big boats get thrown around too in a big storm.
      Victoria will see a surge of spending to celebrate getting out of lock down, but I fear it will be short term.
      I think I agree with DLS … the Feds needed to keep JobKeeper and coronavirus supplement on another 6 months to get the economy back on its feet and moving ex Victoria … and Victoria a few months more … before ratcheting down the stimulus. It’s not like we have too much debt or inflation at present. Consequently if they get the recovery side wrong, the risk accepted is a serious widespread downturn in 2021.. I would much prefer he ran it too hot and risked accelerating inflation a bit from current historically low levels, much more room to observe and plenty of tools to deal with it if required.

  5. SnappedUpSavvyMEMBER

    nah much earlier then that. Insolvency protection ending december will make january february and march nasty, then jk ends in march and april to june will be a horror show

  6. Narapoia451MEMBER

    The end of the payroll credits this month is going to be the biggest hit to our business as we didn’t qualify for Jobrorter.
    PAYG starts going out again next month without being credited back.
    Just another drag on hiring for small businesses in an environment where business is depressed.

      • Narapoia451MEMBER

        Not really – our business need at the moment is for mid to senior developers. These types don’t tend to be on welfare or young enough to qualify for the apprenticeship subsidy.

  7. Frydenberg will never admit his budget is dud and Morrison will simply dismiss Trump style any negative questioning. By then it will be all too late.

  8. Frydenberg’s incredible arrogance will not allow him to admit he’s not that smart.

    He’s been parachuted into jobs and has no clue how the “real world” works. His attitude is more “my will be done”. In the meantime the Aus economy is going down the toilet with him and Scotty leading the charge.

    • Jumping jack flash

      None of them have any idea.

      They only believe what they’re told by the people who benefit from their decisions. A couple of charts and spouting of some economic ideology that only works in textbooks and under ideal conditions with a ton of assumptions that would never naturally occur.

      They have no time to go and look for themselves, and even if they took a look they wouldn’t understand what they were looking at.

      • RobotSenseiMEMBER

        Pretty sure that’s why 1929-32 was worse than it needed to be: the wrong people were listened to.