Australia under recession: How to re-ignite growth and save jobs.

Australia has officially entered a recession, 2020.

Australia has suffered its worst economic contraction since the great depression of 1929. The GDP has collapsed by 7 per cent through the June quarter and 6.3 per cent over last financial year. Should we be concerned? Yes, of course!

While most of the reports will analyse sector wise figures, I would rather concentrate on the silver lining, how to prevent large scale job loss and re-ignite the economy. I will keep my language simple and non-technical for everyone to understand.

What is GDP and Personal Disposable Income?

Gross domestic product (GDP) is the money value of the goods and services produced per year in a country. Higher the GDP of the country, higher can be personal disposable income (PDI) or the money in the hands of people to spend on their daily needs and luxuries. People are likely to get more salary, wages, interest, rentals, profits from investments and the Government support in a booming economy. So why will PDI not be surely high if GDP is high? This is because if the tax rates of the country are abnormally high, the PDI might not be as high.

Treasurer Josh Frdenberg declared Australia is under recession. What does this mean?

Australian GDP comes from Tourism, Hospitality, Construction, Manufacturing, Agriculture, Mining ,Transportation etc. Hon Josh Frydenberg’s announcement that Australian economy has contracted or plunged into recession, means that almost all of these sectors have negatively grown last financial year due to Covid 19. The situation might not ease soon. High unemployment rate, loss of GDP and negative business sentiments may further grow and the people might have lesser PDI or money in their hands to spend.

Is there any silver lining?

There is always a silver lining in the dark clouds. Scott Morrison Government along with the state Governments have done a commendable job in handling the pandemic. Below is how we have fared as compared to rest of the world from economic point of view:

• Despite negative growth worldwide, we are the second best performers, only behind Norway. For example our GDP de-growth is 6.3% as compared to UK which has de-grown by 21.7%. Had we been living in UK, the severity of effects of pandemic would have been three times more. (Source: Sydney Morning Herald)

• We have paved our own path and did not resort to harsh lock-down like France did. We followed effective contact tracing and prevented the worst. We did not bring economy to a halt. NSW Government is a great example in this regard.

  
  

How do we re-ignite growth and get people back to work?

Even though the Federal and State Governments are doing a great job, yet following steps should be taken to move forward and blunt the effects of Covid:

Macro steps

• Negatively growing sectors must be segregated and the sub-sector that are driving the sector southwards rather rapidly should be clearly identified and necessary action should be taken for their possible diversification and recovery

• Further, we must identify key sectors that are rapidly growing or can grow further with or without little tweaking despite pandemic. This is where the Government should be focusing and converging all its energy to propel the growth

• Constitute a team of the representatives from the above mentioned sectors, economists and other strategic planners to identify the measures to re-ignite the economic growth

  
  

Micro steps

Inject liquidity (make available more cash)

• When the sentiment is low, the businesses and individuals hold money (liquidity). Serious efforts must be made to inject money in the economy by direct Government intervention or through financial institutions. However, it must be assured that policy announcements regarding this must not merely remain an announcement. The banks and financial institutions should be closely monitored for easy and quick release of funds especially to the businesses

• Government must encourage external resources that can bring in money in the country and fuel the economy. Education sector has been a 14 billion industry for us in the past. Why not encourage the universities to invite the students, take adequate precautions and quarantine measures when they land here? Let the students come physically to the country. They will not only bring in the fee, spend money on travelling but also fuel the consumer demand

• Invoice Finance or specific export or import trade finance should be made available by the banks to ease the business. The banks can have lien on the payments to make sure the concerned loan does not turn into a non-performing asset (NPA)

• Austrade should work overtime to not only just identify but line up any export possibility with local producers. This will help the country generate income from overseas. Please note mere seminars will not work

  
  

Create more jobs

• A huge emphasis should be given on Job-maker programme. Let the businesses be incentivised to employ new people instead of continuing with the existing employees only. The programme should not only be limited to the large, medium or small-scale enterprises in some specific sectors but must be extended across the board and even to the individuals who have been laid off. Many of them might have skills to start their own tiny business if not small or medium scale one. This will help us reduce the unemployment numbers and increase the productivity of the country

• The eligibility of Job-keeper programme should be based on the income expenditure comparison with the corresponding period and not on just turnover. Possibly a business might have employed new staff to grow in the past and now its turnover is steady if not fallen due to those increased number of staff. Such businesses are disadvantaged by the current programme and should rather be encouraged to turned into torch bearers. They are the real risk takers

• Tax incentives should be given to the businesses and they be encouraged to re-invest the gains and create more jobs

• The Job-seeker programme should be discouraged and used very judiciously. We don’t want people to sit idle

  
  

 Restore business confidence

• Most businesses extend credit to their customers. To protect them, Trade Credit Insurance should be simplified and made compulsory. The Government must back businesses which are seeking insurance to remove uncertainty of possible loss from any of their customer going burst. This will in turn help businesses and individuals to release the much needed liquidity without the Government having to keep a separate outlay for this.

• Rules for timely payments should be framed to solve the problem of cash-flow of the businesses. If someone does not pay legitimate dues or the payment bounces, it should be made criminal offence. Rules should be more stringent when it comes to the large scale businesses as the liquidity shall trickle down faster if flowing from upside.

• Debt collection services should be made easy and cheaper.

  
  

Let us all work together to pull out our country from the recession at the earliest.