Here we are again. Little more than 10 years after the Global Financial Crisis (GFC), the world economy faces another crash. Last time, the trigger was so-called “sub-prime” mortgages; this time, it is a virulent virus — COVID-19.
The impacts, at least for many working people, are strikingly similar: economic slowdown, leading to bosses laying off workers or reducing hours, and slimmer pay packets, contributing to the further decline of demand and the risk of an even deeper economic downturn.
The new aspect of this crisis is the threat to public health and the stark inability of neoliberal governments, such as in Italy, Britain and Australia, to adequately deal with it.
After reaching dizzying highs on the back of historically low interest rates and huge injections of cash by the world’s central banks (so-called “quantitative easing”), the international stock market bubble has begun to rapidly deflate as COVID-19 threatens global trade.
Franklin Templeton Investments Australia’s director of fixed income Andrew Canobi told the Sydney Morning Herald on March 12: “A global recession is quite possible and certainly Australia is vulnerable to such an outcome”.
In March 2015, then-Coalition Prime Minister Tony Abbott claimed the federal budget would be back in surplus within five years on the back of severe austerity measures.
On March 12, federal Treasurer Josh Frydenberg told the ABC’s 7.30 the government would not deliver a surplus in 2019/20, on the back of its much-vaunted COVID-19 stimulus package.
The stimulus package, announced that same day, is “focused on keeping Australians in jobs and helping small and medium sized businesses to stay in business”, according to the government’s media release.
The government has promised that 6.5 million people, in addition to 3.5 million businesses, will benefit from the package.
However, the “stimulus” is not being evenly shared.
Of the $17.6 billion on offer, only $4.76 billion is going directly to those on the lowest incomes. This will take the form of a one-off $750 payment to all those receiving a government pension, Newstart Allowance and Family Tax Benefit.
Australian Council of Social Service CEO Cassandra Goldie told ABC radio PM on March 12: “It will provide some help but we don’t need a quick fix.
“There are big gaps here, it’s not enough what the government has done.”
“We are saying, invest in that desperately needed increase in Newstart, like all the leading economists have said and make sure we’re including community services in the planning of the response to this health crisis.
“It’s people on the least incomes who will be hit first, worst, longest and hardest.
“The government doesn’t have that kind of focus, which is what we need right now.”
Days before the government released its stimulus package, Goldie called for an enduring rise to Newstart of $95 a week: “A Newstart increase of $95 a week would deliver a $4 billion boost to the economy and generate thousands of jobs.
“Through a Newstart increase the stimulus would flow directly where it is needed most, including those regional communities grappling with high unemployment in the wake of the bushfires and drought.
“It would mean people in greatest need would immediately spend on the basics in local economies.”
National Seniors Australia chief advocate Ian Henschke called on the government to raise Newstart in addition to the $750 payments, which he described as representing “a little bit more than $2 a day”.
“If you want to fix the underlying problems you’ve gotta fix the retirement income system in this country and also address the problem of older age unemployment,” Henschke told PM.
“This is a Team Australia moment,” Frydenberg said on March 13.
Frydenberg called on companies to be “community minded” and keep workers on, even during the downturn.
Nevertheless, significant companies have failed to heed the Treasurer’s call.
Flight Centre announced that same day it was closing 100 of its 900 businesses as a result of a slowdown in demand for overseas travel due to COVID-19. The company did not announce how many jobs would go.
Qantas will also dramatically reduce flights for the next six months in response to falling passenger numbers, with the potential loss of 20,000 jobs. The company has asked staff to take paid or unpaid leave to reduce the potential of forced redundancies.
Small businesses are raising doubts as to how successful the government stimulus package will be in preserving jobs.
The package offers small businesses a one-off $25,000 payment to offset the cost of wages, along with certain tax concessions, where small and medium businesses are able to offset the cost of new equipment against tax liabilities, with immediate write-offs.
One small business owner told the ABC: "By the time you pay superannuation on apprentices, insure them, pay all the ongoing costs, their TAFE, and everything else, [the stimulus] is not even close".
Others also pointed out that, with business slowing, few small companies will want to make significant purchases of new equipment to attract the immediate tax write-off.
NSW wage freeze?
While the federal government may be attempting to stimulate the economy with one-off payments to welfare recipients and cash gifts to business, other levels of government are moving in the opposite direction.
Fearing the loss of its budget surplus, the New South Wales government is mooted to be considering a 12-month wage freeze for all public sector employees.
NSW already limits annual wage rises for public sector workers to no more than 2.5%. Any bigger wage rise must be backed by significant givebacks by workers (so-called “productivity savings”).
Facing the possibility of a budget deficit — its first since 2012/13 — the NSW government is reportedly considering the 12-month wage freeze for more than 330,000 employees.
The wage freeze would save the NSW budget more than $2 billion, ensuring the Coalition’s reputation as prudent money managers.
It would also amount to a real wage cut of at least 2.5% for all NSW teachers, firefighters and health workers, among others.
Even without the threat of COVID-19, the real economy in which people live has already been flagging badly.
Wages rose only 0.5% in the December 2019 quarter, according to the according to the Australian Bureau of Statistics (ABS).
The Consumer Price Index (inflation) rose by 0.7% over the same period, meaning real wages had already started to go backwards even before the COVID-19 outbreak.
While the federal government may be able to spend enough to avoid a technical recession (two quarters of negative growth) — as the Kevin Rudd Labor government did during the GFC — this does not mean working people will not be significantly impacted.
According to the ABS, underemployment (those who are working at least one hour a week but want to work more) rose on a seasonally adjusted basis by 0.3% to 8.6% in January.
At the same time, unemployment rose by 31,000 and hours worked throughout the economy fell by 8.1 million.
Even without the impacts of COVID-19, a significant slowdown, stagnating wages and rising unemployment and underemployment were already on the cards.
COVID-19 does not simply pose the threat of an economic crisis, however; it also promises a full-blown neoliberal health crisis.
British Prime Minister Boris Johnson has been clear: working people will pay with their lives for the refusal of his government to adequately fund the British National Health Service.
"I must level with you, level with the British public — more families, many more families are going to lose loved ones before their time," Johnson said on March 12.
In Italy, doctors are actively canvassing imposing an age limit for access to intensive care beds in public hospitals, as rising demand spurred by COVID-19 threatens to overwhelm the ill-funded health service.
Doctors in Australia are also beginning to consider whether they will need to limit access to intensive care beds in the face of a potential surge in COVID-19 cases.
Faced with a shortage of hospital beds, it is unlikely that the wealthy, whatever their age or health status, will be denied treatment, whether in Britain, Italy or Australia.
For the rest, however — the poor, non-citizens, those who do not speak English or have the wrong skin colour — watch out.
It is during periods of crisis, such as the pending health and financial crisis being wrought by COVID-19, that neoliberalism shows its true face.
When the ship (of state) is sinking and there are simply not enough lifeboats for everyone, you can be certain the wealthy will be first in line for a seat.
The rest of us will be told to fend for ourselves.