Australian political leaders don’t often quote New Zealand’s quarterly economic statistics, but on Friday both Scott Morrison (at a press conference) and Josh Frydenberg (on radio) were keen to highlight, unprompted, just how bad the results were across the ditch.
New Zealand, like much of the world, is in a COVID-induced recession. The economy there shrank by 12.2 per cent in the June quarter, a much bigger hit than the 7 per cent contraction in Australia.
The point of raising New Zealand’s record-breaking downturn, of course, was to demonstrate the relative success of Australia’s crisis management.
Since the pandemic began, there’s been debate over which has been the better approach: Australia’s “suppression” strategy or New Zealand’s “elimination”, which involved an early and much harder lockdown.
Despite the second wave in Victoria and all that’s entailed, the Prime Minister and Treasurer are clearly keen to keep the trans-Tasman comparisons alive.
History will ultimately judge who chose the best path and it’s probably still too early to say.
There’s a long way to go
On the health front, New Zealand has unquestionably done better than Australia in both overall and per capita terms.
To date, New Zealand has recorded just over 1,800 coronavirus cases and 25 deaths in a population of nearly 9 million. Australia has recorded 26,882 cases and 884 deaths in a population of nearly 25 million.
Notwithstanding disputes over who’s to blame for hotel quarantine failures, contact tracing and aged care tragedies, the national figures are what they are.
When it comes to the economy, the June quarter results were unquestionably worse for New Zealand. The difference between a 7 per cent and a 12 per cent downturn is enormous. But one quarter, however bad, only tells the start of this story.
There’s a long way to run in the management of this recession and ultimate recovery. What happens from here on in will be far more revealing.
Daring to dream
Jacinda Ardern’s government is predicting a “record jump back to growth” in the September quarter. Facing an election in just four weeks, they would say that, but with life mostly back to normal since those hard lockdown days, most agree the next GDP figure will be far better.
In Australia, the Morrison Government is also daring to dream things may recover faster than previously thought, despite the unwanted second wave and prolonged lockdown in Victoria.
On Thursday, a dramatic drop in the unemployment rate from 7.5 per cent to 6.8 per cent surprised the markets, Treasury and the Reserve Bank.
Some 111,000 new jobs were created in August, nearly all of them “self-employed” workers. Whether this is just delivery drivers and other “gig economy” workers picking up a few hours’ work or a more permanent shift to self-employment in the workforce, time will tell.
Either way, the figures were good news for most of the country (with the unsurprising exception of Victoria). Within the government there’s now uncertainty as to whether unemployment will keep rising as Treasury has previously forecast, or whether it has, in fact, peaked.
A budget reckoning
In just over two weeks, Frydenberg will deliver his recession budget. He knows how important this will be and the famously energetic Treasurer has been working around the clock to get it right.
He’s flagging personal income tax cuts, a significant business investment incentive and a truckload of new infrastructure spending. It’s all about shifting from income support to job creation in a private-sector-led recovery.
Before then, however, one of the government’s most critical decisions in this recession will take effect. The JobKeeper and JobSeeker payments will be wound back by $300 a fortnight or roughly 20 per cent. Millions of Australians are still relying on these supports and the cut will have a material impact on spending in the economy.
The government argues these hugely expensive lifelines can’t go on forever and believes they are so generous some recipients are turning down work, holding back business growth.
Equally, there are many who still need the support and have no prospect of finding a job any time soon. Tapering these payments, while we’re still in the middle of a recession, is a high-stakes call.
The trans-Tasman rivalry endures
The government is betting the worst is now behind us.
It’s confident the improvements now being made by the states in their contact tracing efforts will prevent another wave along the lines of the post-summer surge playing out across Europe.
Remarkably, the states only agreed on Friday to digitally connect their contact tracing data systems. It’s better late than never and will hopefully help to progress a further easing of state border closures in time for Christmas.
Some travel between Australia and New Zealand may even be possible by the end of the year, if both countries can keep virus numbers under control.
Either way, the trans-Tasman economic rivalry is set to continue.
Australia may have suffered a less severe downturn than New Zealand, the question now is how prolonged it will be.
David Speers is the host of Insiders, which airs on ABC TV at 9am on Sunday or on iview.