The Coalition’s great stimulus shot goes wildly off target

It is a Coalition reflex to help out tradies when times are tough. Yet it has missed the hardest-hit section of its small-business base.

Back in the day, we had Howard’s battlers and Tony’s tradies. Without wishing to encouraging any more political cliches, a live question, after the 2020 budget, would be how you would describe Scott Morrison and Josh Frydenberg’s tribe?

The budget, the Treasurer told us on Tuesday, “is all about jobs” and “the Morrison government’s message to Australians is that we have your back”.

It is coffee shops not tradies that have taken the biggest hit.  Justin McManus

The government has punted everything on getting a private sector-led recovery out of recession, and a private sector led recovery that will happen both really, really quickly and dramatically enough to offset the huge disruption about to start as businesses lose JobKeeper support for their workforce, run out of rent and bank payment holidays and decide to close their doors.

The budget forecast is for the economy to be more or less back to the level of activity it was before COVID-19 hit by the middle of next year. That looks like some feat.

Given this grand ambition, there are some perplexing political – and policy – choices in the budget which scream ideological purity over rational decision-making. Josh Frydenberg spoke of “providing a helping hand to those who need it”, yet so much of the budget is actually directed at people, and sectors, that do not need it.

Abandoned to liquidators

The most perplexing political decision is that the government has not only abandoned such a large swathe of its own small business base, but it has constrained the chances of it taking part in the promised recovery.

There has been lots of talk about tradies in the past few weeks. There is nothing the Coalition of the last couple of decades has loved more than the tradie. But it has not been tradies who have suffered the worst of the economic downturn. Construction and mining, for example, have until now kept turning over.

It is the myriad small- to medium-sized businesses in the services sector that have been hit hard. True, some have been able to alter their business models. But it is more than just the cafes and restaurants in CBDs affected by the flight from offices. It is more than just low-paid workers in those places. It is all those other small businesses that rely on people being out and about on the streets, or travelling around the country for business or pleasure.

Investment tax breaks don’t help any of them, nor do wage subsidies to hire extra workers – at however low a rate – if their turnover is struggling to reach pre-COVID-19 levels.

It seems extraordinary that the party that is supposedly the one of small business is abandoning all these businesses to the liquidators, particularly – as the Treasurer repeated on Tuesday night – since they are in this situation “through no fault of their own”, but because of deliberate government policy in response to a health crisis.

As the Grattan Institute points out: “The worst fallout in the COVID-19 recession has been in services sectors”.

“Hospitality, the arts and administrative services have all been hit hard. Yet these sectors received next to nothing in the budget. They are also less likely to benefit from economy-wide supports such as instant asset write-offs because they are the least capital-intensive sectors.”

Ignoring women

These sectors all have a large female workforce, which is one of the reasons why Labor and others are attacking the budget’s failure to support women.

But a broader point is that the government’s apparently obstinate determination to push all its support through the private sector also means ruling out something obvious – such as spending money on jobs in the public sector, even when that must constrain its chances of getting the economy going again, and/or hitting its jobs target.

It’s not as if it is not prepared to spend money in the public sector per se. Defence, intelligence services and law enforcement are all getting big lifts in spending.

And you don’t just have to hire a lot of “pen-pushing” public servants – as the Coalition seems to regard the entire public service – to boost job numbers.

The very sectors that conspicuously need more staff – and the fastest growing parts of the workforce before COVID-19 – are in the public sector in areas such as aged care, disability care, health, education, mental health, employment services, and child care.

The budget included some money for most of these sectors, yet nothing on a scale similar to the direct and indirect support for areas like manufacturing and energy, nor with any of the transformative ambition.

The Treasurer said in the budget that eight out of every 10 jobs were in the private sector. Yet public administration and government represents about 2 million workers.

The community and charities sector accounts for another 840,000 full-time equivalent jobs. That covers jobs in industries from child and aged care to domestic violence and homelessness, disability services and mental health.

A world of (even more) pain

But there is nothing material to support these sectors, even though the Australian Council of Social Services released a survey in September that showed about a third of organisations had frozen recruitment and 20 per cent had reduced staff hours. It also foreshadowed that 21 per cent would need to cut jobs when JobKeeper support ends.

The Prime Minister told ABC’s 7.30 on Wednesday that the government didn’t want to “bake in”’ spending over 10 years in response to this crisis as some people had done in the past (ie Labor after the GFC).

But he was more than happy to “bake in” income tax cuts that economists say are of dubious value as a stimulatory measure in the broad, and which cut the revenue base with which to reduce eye-watering levels of deficits and debt in the medium term.

Even initial suggestions that backdating the tax cuts – passed by Parliament on Friday – might produce some upfront cash in hand in the next few months, turned out not to be the case. The backdated tax cuts between July and now won’t be paid until you lodge your return. (Just before a likely election).

And because the low and middle income tax offset will be withdrawn next year, all that budget-night talk about most of the benefit going to lower income earners is also bunkum beyond this year. Most of the benefit will go to higher income earners who tend to save (or reduce debt), rather than spend, their tax cuts.

Even the two once-off $250 payments to welfare recipients will only go to aged pensioners, not families with kids and those who are about to lose the JobSeeker supplement who could be guaranteed to spend the money.

So the Coalition has now got little choice but to sit back and hope the private sector delivers for it. If it doesn’t, we are all in a world of (even more) pain. And the options open to the government to intervene to help whichever tribe it thinks it was helping on Tuesday night may have been delayed that little bit too long.