The ‘second wave’ and the Australian economy

Failing to address the unemployment and underemployment challenges facing the nation will have significant impacts on the social and economic wellbeing of hundreds of thousands of people for many years, writes Joe Zabar.

The recent spike in COVID-19 cases that has led to the shutdown of Melbourne has us pondering an important question: What will this “second wave” do to Australia’s economic recovery?

The OECD’s June 2020 Economic Outlook projected that the COVID-19 pandemic would see Australia’s GDP decline by around 5 per cent – a relatively good result when compared to other nations. The cautionary note from that report was that should a second wave of COVID-19 occur, then the hit to Australia’s GDP could be around 6.3 per cent. 

It’s therefore little wonder Premier Daniel Andrews and his National Cabinet colleagues are keen to see this latest outbreak controlled as quickly as possible.

While the health crisis from this COVID-19 pandemic is far from over, governments – state, territory and federal – are now very much focused on getting the economy moving. 

We are a country of consumers and it is this consumption of goods and services that drives a good portion of our economic activity. 

Our service sector is large, but it has been severely disrupted by the pandemic. To keep the economy moving we need consumers to spend, but as the number of people losing their jobs continues to climb, economic activity in Australia will continue to remain weak.

Our path to recovery will centre around jobs and economic growth. But the private sector, especially small businesses in our services sector, are in deep trouble. The result is that they are firing rather than hiring, with the worst yet to come if the government ends JobKeeper in September. 

For confirmation of the weakness of our employment market, one need only reflect on recent ABS data that found there were only 129,100 job vacancies in May. Yet there are some 1.4 million Australians on JobSeeker payments and 1.6 million people who are seeking more hours of work. It is painfully clear that the road ahead will be difficult. 

The second wave of COVID-19 cases affecting Victoria, our second-largest state economy, makes our national economy more vulnerable and will likely see our economic recovery be much slower and longer. This will place significant pressure on the Morrison government to articulate how it intends to deal with this latest setback in its economic update to be delivered later this month.

The prime minister and his ministers are well aware of the challenges ahead. The messages from the prime minister are rightly focused on jobs. However, there seems to be little capacity nor incentive in the private sector to create the number of jobs necessary to address the growing jobs crisis facing many Australians, especially women and young people about to finish school.  

Failing to address the unemployment and underemployment challenges facing the nation will have significant impacts on the social and economic wellbeing of hundreds of thousands of people for many years. Many people are rightly feeling anxious and the treasurer’s July economic update is the opportunity to address some of this anxiety. 

The reality is that there will not be much good news to share in the July update. However, dwelling on it won’t get us moving forward. Instead, the treasurer might use the opportunity to reassure the public that jobs and growth are the key economic priorities of this government. But it can’t be the “jobs and growth” of electoral sloganeering.

There are three key messages the treasurer should give. First, that the government’s blueprint for our economic recovery has at its centre a commitment to a full-employment economy; that is, an economy where everyone who wants a job has a job. Second, that the government will invest what money is necessary to get the economy back on track and in good health. Third, it will be transparent about the economic and social indicators it will use to determine when they believe it necessary to wind back their financial support of the national economy.

All eyes will be on the treasurer on 23 July as he provides the update, including on the fate of JobKeeper and, by extension, JobSeeker. We need an absolute commitment to jobs and economic growth and not one tinged with political pragmatism of doing “good enough”. 

That requires the government to invest in things like a job guarantee program where everyone who wants a job can get a minimum paid job. That approach is receiving increased support from a range of sources.

Without a commitment to delivering full employment, more than 1.4 million Australians will be dealing with the same inadequate policies and government programs that saw more than 710,000 people unemployed and 1.1 million people underemployed before the COVID-19 pandemic hit. 

We are a clever and resilient country able to fashion solutions to the great social and economic problems of the day. To do so we need strong leadership, transparency and above all a commitment to the common good – which means a commitment to a full-employment economy in Australia.