Treasurer Reveals Budget of Economic Hyper-Optimism
Government believes that tax-cuts and limited wage subsidies will suffice to reduce unemployment rate, revive consumer confidence and recover economic growth in 2021, indicated the Treasurer approach.
Despite the harsh reality of the shrinking job market, collapsing energy prices, and continued volatility of assets prices government is planning to cut JobKeeper in March and will decrease JobSeeker's additional subsidy from $500 to $250 fortnightly this month. The government is deciding to withdraw the economic assistance at the onset of the economic storm, which will hit with its full impetus the global economy in December, the latest, if the US lawmakers will cease providing the additional support to households.
Treasurer optimistic statements stood in sharp contrast with the dramatic plea of Federal Reserve Chairman Jerome Powell, who warned US Congress against the looming "tragic economic consequences" if the financial aid will be disrupted.
The expansion is still far from complete, Mr. Powell said in remarks delivered at a virtual economics conference on Tuesday. At this early stage, I would argue that the risks of policy intervention are asymmetric, stated Fed Chairman. Too little support would lead to a weak recovery, creating unnecessary hardship, warned Mr. Powell.
Fed Chairman emphasised that the risks of providing too generous relief are smaller, he said.
Even if policy actions ultimately prove to be greater than needed, they will not go to waste, he stated.
It is unlikely that the political tension in the U.S. among both political parties will allow for voting new, more generous stimulus that would have to amount to at least $3.4 trillion proposed by Democrats. The package includes the payments for households and extension of the PPE program for the businesses. Democrats also included aid for the most affected industries by the pandemic, including the US airlines and the hospitality services. But it is improbable that the Republican Senate will agree to such an increase in spending.
Australia's economy is tightly connected with the United States as its fourth-largest export market. With increasingly limited access to Communist China, the US has been the third destination for Australian goods and services of 9.5 per cent of the total share. It is more than certain that the majority of Australian exports will not find its destination in the United States not only in 2020 but in 2021 and perhaps even 2022. The exported good will generate less profitability due to the cash-dried markets, decrease in demand and the indebted firms.
The only realistic stable source of the growth of the Australian economy is the internal market which needs to be straightened by the increased budget spending. But the authors of the budget turned their heads off the households demonstrating a strong belief in the potential of great economic expansion through the exports.
Weaker Australian economy needs more not less support
The decision of Mr. Morrison's government to cut support for the Australian household who thanks to the additional small subsidy to the meager income could sustain the demand for basic goods and services is clearly at odds with the statement of the senior experienced economists as Fed Chairman who closely watch the global markets. It is self-harming decision, more particularly harming the poorest of the poor which this Liberal government has systematically ignored.
Despite the claims of Mr. Treasurer, the Australian economy is slowing with firms increasing food prices to recover its losses from the little subsidies which impoverished consumers received from the public budget. The inflation of food prices is not a sign of economic growth but rather a sign of a crawling economic crash.
As a result of the pandemic and the sanctions of Beijing, the job market shrunk in the second quarter of the year at least three times in comparison to 2019. The recovery is not in sight, but the announcement of planned layoffs by firms in the transportation, hospitality, and even some manufacturing by the end of the year reveals that the unemployment rate may hit more than 10 per cent taking under account under-employed and unemployed.
The government so-called JobMaker program is not accessible for the small firms who are struggling not since they will not afford the employment of a young inexperienced person to receive a $100 - $200 wage subsidy fortnightly. It is not an unrealistic goal that looks rather like the premeditated, albeit cynical, strategy to create impossible conditions that the government could save the expenses. The only real solution is $50 billion in tax cuts which will help the wealthy but leave the poor behind.
It is probably the worst budget which Australians could receive in the most difficult times for the country's economy. Its goal is to create condition for multiplying the wealth of the existent owners - the millionaires and billionaires who are also sponsors of the ruling political parties.
It is significant that neither Prime Minister nor his Treasurer did not speak the language of compassion, like Mr. Powell who warned against the imposing unnecessary hardships on households, but rather the language of triumphalism and disregard of the needs of the poor and unemployed.
The independent economists estimated this budget will probably not last even to the end of this year forcing Mr. Treasurer to come to his senses and increase the financial assistance to households he rushed to cut off.