Monday, August 10, 2020
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Soaring unemployment could lead to ‘bloodshed’

Australia is entering the worst downturn in its history and experts say policies being advocated by the federal government and the business community could exacerbate poverty to the point of “bloodshed”.


More than a quarter of the workforce – 3.4 million Australians – could be out of jobs as a result of the COVID-19 shutdown, according to the Grattan Institute, which says Australia is facing “the worst or one of the worst economic downturns in its history”.

Foodbank, which reported last year that one in five Australians did not have enough to eat, told Voice of Action that it has seen an increase in food demand by 50% as a result of the COVID-19 crisis (from 815,000 to 1.2 million), while the number of charities it provides food to has decreased by 18% due to charities closing.

“It will be the biggest downturn since the Great Depression,” Emma Dawson, executive director of progressive think tank Per Capita, told Voice of Action in an interview.

“If inequality goes too far it leads to bloodshed … in Australia we don’t see a lot of that, we don’t riot in the street, but there will come a point where people won’t accept massive amounts of people living in poverty.”

Big business and its spruikers, who have been campaigning to end the COVID-19 lockdowns early so they can continue making money, are already seizing on the crisis to demand a shift to small government, deregulation and changes to workplace laws which further cement corporate power over workers. They argue for austerity measures which would see government spending cut in order to quickly pay down public debt after the lockdown, despite evidence that such measures caused soaring poverty and inequality and stifled economic growth in Britain after the 2008 financial crisis.

The Federal Government has already flagged company tax cuts and an aggressive overhaul of Australia’s industrial relations laws, which would be a continuation of the discredited trickle down economic policies that are driving wealth inequality and declines in real wages in this country. Austerity measures could involve cuts to government spending on essential services and income support, the selling off of public assets and an increase in the GST, a tax which disproportionately falls on the poor.

The ABS has released new figures showing the share of the population with a job declined to 63% in the first week of April (down from 66% first week of March), while the proportion of Australians who reported they had a job working paid hours decreased from 64% in the first week of March to 56% in the first week of April. The next round of figures are expected to be grim.

Callam Pickering, economist with Indeed, said this data suggested the unemployment rate had already climbed to 8% from 5.2% in March. “Australian job postings are tracking around 54% below their trend at the same point last year,” said Pickering.

Dawson said: “We are poorly positioned to recover because we no longer make anything, our entire economy is based on exporting resources and importing education and tourism; those are 3 sectors that are going to take a long time to recover.”

Per Capita executive director Emma Dawson

Dawson said the business-dominated support packages introduced by the government in response to the crisis showed the government’s first priority was to protect existing power structures in the economy. She said the child care bailout, far from socialism, was “essentially propping up the private operators”. Dawson was critical of Qantas for taking its huge bailout and distributing it to shareholders while still laying off its workforce.

“They’re trying to keep the old system on life support so that they can restart it and that’s not a surprise because they’re the party of small government and private enterprise, but actually what this crisis has done is revealed the incredibly shaky foundations of that way of life and of the neoliberal economic agenda,” said Dawson.

The Australian Unemployed Workers Union (AUWU) has been inundated with queries over the last month, with 500 new members, 80 new volunteers and five new branches started up. AUWU spokesman Jeremy Poxon said the union will be campaigning hard to ensure the Newstart (now Jobseeker) payment, which was effectively doubled to support unemployed workers during the crisis, will not be reduced back to poverty levels.

“The government has now proven that we easily have the fiscal capacity to permanently raise Newstart to a liveable level,” Poxon told Voice of Action. “Doubling the rate is going to allow hundreds of thousands of people to participate and spend in this economy; it’s literally the thing that’s going to lift us out of a recession.”

AUWU’s Jeremy Poxon says unemployed workers are organising to fight spending cuts

Per Capita this week released a report arguing that rather than pursuing austerity measures that would suffocate the economy, the government needs to significantly increase its spending – like the Curtin and Chifley governments around World War 2 – to grow our national productive capacity and restore jobs following this crisis. It argues that business cannot be relied on to do the heavy lifting pointing to the fact that the corporate tax rate in Australia has fallen from 49% in the 1980s to the current rate of 30%, while R&D spending and capital investment has been well behind other advanced economies.

“Hoarding public wealth in a large, unproductive government surplus, or giving it away via tax cuts to boost the private savings of individuals or the profits of multinational businesses, is inherently counter-productive to the economic and social wellbeing of the nation,” Per Capita writes.

Australia’s public debt at around 20% of GDP is among the lowest of any advanced economy and even with the additional debt required to fund the Jobseeker and Jobkeeper packages, net debt is only expected to increase to 26%, still much lower than camparable nations even before the pandemic.

Per Capita says unlike households the federal government can roll over its debt indefinitely provided economic activity and productive capacity operates at full potential, while the debt shrinks as the nation’s economy grows.

The International Monetary Fund recently argued that large public debt is sustainable for advanced economies like Australia as long as GDP grows faster than the interest rate paid. The yield for 10 year government bonds is currently less than 1% while inflation is around 1.75%, which means that borrowing is essentially interest free for the government.

“Recent research has shown that GDP growth is not negatively affected over the long term by the presence of debt below 90% of GDP,” according to Per Capita.

“Tightening the purse strings too quickly will jeopardiase the recovery and may lead us down a low demand, high unemployment, low growth route.”

Per Capita argues that rather than pursuing short-sighted actions like selling off public assets or forcing people to dip into their superannuation, large scale government borrowing is required to finance investments in carbon-neutral transport infrastructure, renewable energy generation, R&D incentives that actually encourage business to invest, and a rebalancing of the demands of paid labour with unpaid work and care.

“Any expectation that the economy will spring back to life – or ‘snap back’ to normal operation – in the aftermath of this crisis is fanciful.”

The Grattan Institute research found more than half of all workers in the hospitality industry could lose their livelihoods as would many in retail, education and the arts. Lower income workers were twice as likely to be out of work as high income earners, while younger Australians and women would be hit harder.

Grattan Institute predicts 40% of those aged 15-19 will be unemployed, 30% of those in their 20s, and 25% of those in their 40s.

Young people are often hit harder in recessions in Australia – in 1992 during the last recession youth unemployment was above 20% compared to the broader unemployment rate of 11.2%, while it hit 14% after the 2008 Global Financial Crisis. Before the COVID-19 crisis the unemployment rate for 15-24 year olds was 12.2%.

Australia’s unemployment rate will rise to between 10-15%, Grattan Institute predicted, but this will underestimate the true impact because those receiving the $130 billion JobKeeper wage subsidies will still be regarded as employed even if they are not working, while others will give up looking for work altogether and therefore not be counted in the statistics.

“If all of those 3.4 million Australians moved from being ’employed’ to ‘unemployed’, the unemployment rate would spike to 30%,” according to the Grattan Institute.

Unemployment will soar but the true impact will be conceaeld due to the JobKeeper subsidy

Both Grattan Institute and Per Capita say the economic shock is going to be so big that much more government support will be required.

“If our estimates are even close to accurate, Australia is facing either the worst or one of the worst economic downturns in its history. And there could be a ‘second wave’ hit to the economy even after the immediate health threat eases,” wrote Grattan Institute economists Brendan Coates and Matt Cowgill.

Dawson advocates big spending on projects such as public housing, renewable energy infrastructure and rebuilding our manufacturing capacity. “We haven’t seen the stimulus spending yet we’ve seen life support spending for the capitalist economy,” she said.

John Quiggin, professor of economics at the University of Queensland, believes income support measures will need to be maintained well beyond six months, while the crisis revealed the inherent instability of our economic system.

“The crisis has exposed the complete inadequacy of the support provided to the unemployed workers and people with disabilities under successive governments,” he wrote in Inside Story.

The Australia Institute published analysis showing that even with the $550 boost to the Newstart/Jobseeker payment, many families will still be forced to live on the poverty line. It argues the temporary boost should be turned into a permanent investment in the social and economic health of the nation.

“The Coronavirus Supplement takes the family of four from almost 20 per cent below the poverty line to almost 7 per cent above the line,” according to The Australia Institute.

“A family with two children will still receive less support than was the case under the Hawke Government and around the same amount as was offered in the early years of the Howard Government.”

Increased Jobseeker payments barely leave people above the poverty line

Dawson believes government should be using the opportunity to take profit making entities out of child care and aged care and look to nationalise or at least take equity in companies as opposed to bailing them out with taxpayer funds.

“The biggest problems with the package is it’s targeted to supply rather than consumption,” she said, arguing that huge sections of the labour market such as casuals remained unsupported.

“They outsourced a lot of support for business to the banking system through liquidity to provide loans whereas small business and medium business aren’t going to be taking on loans when they’ve got no customers, so that will naturally advantage the big end of the business community.”

Dawson believes now is our “last chance to rebuild the economy” to make it more equitable and address climate change.

“If we don’t do it now it will be our last chance; when climate change really hits it’s going to make the last six weeks look like a walk in the park,” she said.

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