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Searching for sunshine beyond SA's recession gloom


The nation is officially in the doldrums and many are doing it tough, but figures show that getting the virus under control leads to quicker economic recovery, and that’s a positive for SA, says Greg Ogle.

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When the ABS released the June Quarter national accounts, we confirmed that Australia is officially in a recession. But beneath the headline figures the national accounts data provide some reasons for optimism about the state of our economy – particularly in South Australia.

The first and most obvious point is that the states where coronavirus has been basically kept under control, the economic losses have been far less than in the states where the COVID-19 restrictions needed to be harder. The Northern Territory had the lowest drop in household consumption (7.5%), followed by Queensland (9.6%) and South Australia (9.9%) – well below the national average that was driven up by the drops of more than 13% in NSW and Victoria.

At one level this is obvious (more restrictions lead to more economic impact), but rather than a trade-off between economics and community safety, what the data suggests is that if we get/keep the virus under control, we will get better economic outcomes.

Further, while measures of production and consumption have plummeted with the COVID-19 restrictions, the data is backward looking and in many cases does not represent a problem with the economic fundamentals.

For instance, while there was lower household consumption and a big increase in savings, this was driven by “physical” restrictions on expenditure, rather than a wholesale change in economic behaviour which might strangle economic recovery.

According to the ABS, the 9.9% loss of household consumption in South Australia was driven by a 48% fall in hotels, cafes and restaurant expenditure, and an 87% drop in transport services from travel restrictions and increased working from home. But since these figures were counted, there has been a considerable opening up of hotels, cafes and restaurants so the June quarter data does not represent what is happening now.

Similarly, while there is still a major hole in international and national tourism, intra-state travel and tourism is freer than it was in June – and at a personal level many people may now be welcoming the opportunity to work from home, a benefit not captured in the national accounts.

The economic recovery is obviously not done, and there were significant pre-COVID problems of unemployment and underemployment that will again need to be addressed, but the current situation is not as bad as the June quarter data suggests.

Finally, it should be remembered that the national accounts only measure market outcomes, not total production – so the 48% decrease in hotels, café and restaurant expenditure did not represent a halving of actual consumption of food and drinks.

Rather, the production and consumption of such goods shifted to the household – which is not measured in the national accounts. As historian Graeme Snooks noted years ago in compiling estimates of total production over the course of Australia history, failure to account for non-market production exaggerates the depths of depressions and the strength of recovery.

None of this is to say that we have nothing to worry about. For those who have lost jobs or income, the economic impacts of COVID-19 have been severe. We need to get those people back to work and in the meantime we need to maintain adequate income supports in JobKeeper and an enhanced JobSeeker payment – surely we can’t go back to a below-the-poverty-line $40 a day allowance for people who are looking for work.

We should also not underestimate the economic challenges for the state government and the state budget. The 15% fall in South Australian expenditures on housing transfers does not bode well for state tax revenue from conveyance duties, while payroll taxes will be hit by decreases in employment and the GST pool will contract with the 12% decline in national household consumption.

It is good that the state government has indicated that it is prepared to carry greater debt levels to provide much-needed stimulus and community services, but in the longer term we will need to address the tax base – or see a significant cut in government services.

So yes, we are (or at least were in the June quarter) in recession, but there is no need to panic.

If we keep the virus under control, we will return to growth and in the interim we need to look after those who are bearing the biggest costs of the crisis.

Greg Ogle is senior policy officer, SA Council of Social Services

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