Australia’s economic history

Official Australian Bureau Statistics (ABS) statistics for GDP and the unemployment rate only extend back to 1959-60 and 1978 respectively. Data from a range of sources were collected to compile a volume measure of GDP and the unemployment rate back to 1905-06. Figure 1 shows the Australian unemployment rate from 1905-6, which helps to understand Australian economic history and contextualise current economic challenges.

There have been eight events since 1905-06 when the Australian economy has contracted in size:

• In 1914-15 GDP fell by 11.0 per cent due to the onset of the First World War.
• In 1919-20 GDP fell by 1.2 per cent due to the impact of the Spanish Flu.
• The gold standard export shock of the 1920s when GDP declined in 1924-25 and 1926-27
• The Great Depression.
• Between 1943-44 and 1946-47 GDP fell 7.9 per cent initially a result of the domestic economy contracting due to the war efforts and then as war production ceased and the economy began to transition back to normal economic production.
• In 1952-53 GDP declined by 2.0 per cent, driven by a 10 per cent fall in wool exports.
• The two modern recessions saw a fall of 0.4 per cent in 1990-91; and 2.2 per cent in 1982-83.

Current COVID-19 economic response

In contrast, the current Australian Government’s first stimulus package in response to the COVID-19 outbreak was very much a standard Keynesian approach to a slowing modern economy, including injections of cash for consumers who have the highest propensity to spend and incentives for businesses to invest. This first stimulus package would have been very appropriate during the second half of 2019 as the economy slowed. But due to its small-scale focus on encouraging business investment, and business uncertainty and supply chain disruptions, it was mostly ineffective.

This first package was supplemented with a second stimulus package with even larger spending designed to inject money into the economy at a vital time. State governments also adopted measures to support businesses through payroll tax relief, increased spending and government employment. These actions were supported by increased liquidity from the Reserve Bank of Australia, which was an important lesson from the Global Financial Crisis. The third stimulus package included the $130 billion Job Keeper payment.

Four non-standard economic approaches

Leaders managing the economic and social challenges of the COVID-19 pandemic may need to consider non-standard economic approaches throughout 2020 and 2021 as they attempt to avoid or soften any economic downturn in Australia.

Nationalising key services

The Australian Government could take equity or even nationalise critical parts of the national economy. The airlines would be an obvious example. The Australian economy will be hindered without a functioning domestic or international air travel market. This approach could involve governments owning (but not operating) airlines, with current management teams in place long enough for normal economic conditions to return. In another example, the government has effectively underwritten the private hospital sector.

Emergency equity

Emergency equity could be provided to selected listed companies with revenues reduced by more than 50 per cent (the 50 per cent figure can be debated as being too high or too low). These companies could be selected based on their ability to prosper at the end of the crisis and the negative impact their failure would have on broader supply chains. It would involve the Australian Government selecting the companies. An example is the bailout of the American financial and automotive sectors during the Global Financial Crisis.

Local infrastructure building program

Significant funds could also be provided to state and local governments to support an infrastructure building program to offset any collapse in private sector investment. This initiative could fund a major construction program in social and affordable housing to offset the fall in private dwelling construction. Alternatively, if a fall in house prices leads to mortgage defaults, state and local governments could purchase distressed new home sales for use as social housing.

Boost local government project pipeline

Local governments across the country have long lists of small-scale infrastructure projects which can provide a pipeline of work. Local government in a good position to identify additional projects such as tree planting, waterway remediation, and open space enhancements which can be undertaken by workers with a basic skill set. This approach would reduce the pressure on the more skilled construction workforce so they can focus on housing and infrastructure building. Funding for these types of projects would require some innovative funding mechanisms.

Going beyond standard economic approaches

While Australia’s economy and society are very different from the late 1920s, we need to learn from the Great Depression and do more than apply the standard economic approaches during the COVID-19 pandemic. The long time series of the unemployment rate and GDP shown in this article help contextualise the current challenges facing the Australian economy. Also discussed in the article are policies that could help soften any economic downturn in Australia during the pandemic.