Austerity and victim blaming: Scott Morrison goes back to the old politics

The government’s “snapback” strategy has finally snapped. Gone is the Keynesian language about the benefits of the largest stimulus package in Australian history, when jobkeeper was announced in March. Tuesday’s National Press Club address by the prime minister, Scott Morrison, makes clear that his government has returned to austerity, victim blaming and cliches.

Like a lost driver claiming to have deliberately taken the scenic route, Scott Morrison is desperate to make a fiscal virtue out of the Australian Tax Office’s $60bn administrative error. Just last week, the Treasury secretary, Steven Kennedy, was assuring the Senate that the unprecedented size of the government’s fiscal stimulus package was appropriate, given the unprecedented size of the recession we are headed into. But this week, after learning that jobkeeker was only providing half of the stimulus he had promised, Morrison is pretending that he never really wanted to spend the full $130bn on jobkeeper anyway.

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The underspend on jobkeeper is based on two entirely unrelated errors, but Morrison is now banking on Treasury having made a third – even bigger – mistake. Let’s look at them one by one.

The first mistake was the original costing of jobkeeper by Treasury, which predicted more than six million workers would benefit from the payment. As I’ve said before, the numbers never looked right. With less than 14 million people in the entire labour force, the decision to exempt most casuals and temporary visa holders from the jobkeeper scheme meant that Treasury was predicting nearly half the eligible workforce would have qualified for a wage subsidy. Given that no one was predicting more than two million job losses, this meant that only three things were possible:

1. The recession was going to be far deeper than Treasury’s 10% forecast.

2. We were going to give an enormous amount of public money to companies that had no intention of standing down most of their staff.

3. The program would be massively underspent.

I put my money on it being number two, and a bit of three. My colleague, Jim Stanford at the Centre of Future Work, went for a lot of three and a bit of two. Treasury was way off.

The next error was made by the ATO, and it is worse in many ways. Forecasting is hard at the best of times and February was not the best of times. But once the jobkeeper cash started to flow out of the government’s bank accounts and into employers bank accounts, the forecasting stopped and the counting should have begun. Time will tell how it happened but, to be clear, the ATO’s error was that it had no idea how much money it was actually spending. In an incredible coincidence or cock-up, the wrong number they came up with happened to be about the same as Treasury’s flawed forecast.

And now, Morrison is not just betting his credibility, but the livelihood of millions of Australians, on the belief that his Treasury has made a third error about the size of the recession Australia is heading for.

Both the Treasury and the Reserve Bank of Australia (RBA) have forecast that Australia’s GDP will be 10% smaller by September than it was in December last year. To put that fall into context, the 1991 recession saw GDP fall by less than 1.5%. If recessions were a wave, then the one heading towards us now is expected to be seven times higher than the last one to hit us. If Treasury’s forecast is a bit out and GDP “only” falls by 8% then the recession will “only” be five times worse than 1991.

Last week, Kennedy addressed the Covid-19 Senate committee and assured the parliament not only that jobkeeper was being delivered to more than six million people, but that the $130bn cost of jobkeeper was appropriate, given the size of the recession that Treasury is expecting.

So the $60bn question is: does Treasury still think we are heading for the biggest recession in a century?

It would be phenomenal news if Treasury and the RBA no longer thought that Australia’s national income was about to fall by 10%. The 1.5% recession of 1991 ruined hundreds of thousands of lives, and while the unemployment rate took years to fall, the reality is a lot of retrenched workers wound up on the age pension before the labour market created another job for them. Avoiding the 10% recession forecast would be the best possible news.

But despite fronting the press club for an hour on Tuesday, Morrison made no mention of any such great news from Treasury. On the contrary, after demonstrating that his government had spectacularly failed to roll out the promised fiscal stimulus, Morrison simply tried to shift responsibility for managing the economy away from his government and on to the shoulders of everyone else.

Despite the fact that mass unemployment is caused by a lack of demand for products, Morrison announced that his plan was to focus on the skills of the unemployed. This trick is an oldie but a goodie. It allows politicians to sound like they are helping the unemployed, while actually planting the idea that it is the unemployed people’s lack of skills – rather than the federal government’s lack of stimulus spending – that is the cause of unemployment. Blaming the victim always works in Australia.

Morrison also tried to shift responsibility for job creation on to the unions and employer groups on Tuesday. Having finally ditched the conservative virtue signalling union busting legislation, Morrison is now arguing that industrial relations reform is central to his “jobmaker” plan, but ultimately the responsibility of others to design. Well played, Scott, well played.

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For two months, Morrison and the treasurer, Josh Frydenberg, have wrapped a cloak of Keynesian language around their fiscally conservative worldview. While it never fit well, this language at least suggested they were listening to the economic advice of Treasury. But on Tuesday, that cloak was discarded.

The government has flicked the switch back to austerity economics and victim blaming. The jobmaker plan wasn’t a package of legislation or funding, it was a list of cliches, designed to shift the economic debate away from the government’s own failure to go early, go hard or go households, and back to the old political attacks designed to go unions, go “dole bludgers” and go state premiers.

If Treasury really did make a third mistake, and now believes the looming recession might not be so bad at all, then Morrison might have pivoted at the perfect time. But if that’s the case, his decision to keep Treasury’s good news to himself may be “good” politics but it’s terrible for investor confidence.

If Treasury hasn’t significantly changed its view about the size of the recession heading our way, the prime minister’s decision to ignore macroeconomic advice and focus on his preferred microeconomic hobby horses will be devastating for him. And, more importantly, it will be for Australia as a whole.

We will find out which one it is soon enough.

• Richard Denniss is chief economist at independent thinktank The Australia Institute