On April 21, Prime Minister Kevin Rudd finally conceded that "it's inevitable that Australia … will be dragged into recession".
On the same day, Reserve Bank of Australia governor Glenn Stevens went further in a speech to the Australian Institute of Company Directors, saying: "Whether or not the next GDP statistic, due in early June, shows another decline, I think the reasonable person, looking at all the information available now, would come to the conclusion that the Australian economy, too, is in recession."
On April 23, the Australian Financial Review reported that the International Monetary Fund (IMF) had "dramatically downgraded its outlook" for the Australian economy, predicting a recession similar to the 1990s downturn and an unemployment rate of up to 8% next year. The IMF said the economy was set to contract by 1.4%.
For working Australians, the admission that Australia is, or at least soon will be, in a recession means very little. The facts have already spoken.
Since September 2008, Australian unemployment has climbed from 474,100 (4.2% of the workforce) to 612,800 (5.4%). Over the same period, the number of full-time jobs has fallen and underemployment (people wanting to work more hours to make ends meet) has increased.
Underemployment increased from 5.9% of the workforce in May 2008 to 7.0% in February, according to the Australian Bureau of Statistics.
What this means is that more people are unemployed, while even greater numbers are facing shorter hours and lower pay. Businesses are shedding staff and cutting hours (and pay) in order to reduce their costs in the face of falling demand for the commodities they produce.
According to the IMF, the situation will only get worse. Its World Economic Outlook report, published on April 16, said, "The current recession is likely to be unusually long and severe and the recovery sluggish".
The fact that the current global recession is both highly synchronised (almost all of the advanced capitalist economies are in recession) and was caused by a massive financial crisis, means we are in for a very difficult time ahead, the IMF said.
For example, the April 21 Sydney Morning Herald reported that almost one in four businesses in NSW is planning to sack staff in the next three months.
What next?
The severity of the crisis is exacerbated by the scope of the bad debt that weigh on bank balance sheets largely in the form of "toxic assets" (dodgy mortgages that were bundled together, given a "AAA" rating by agencies and on-sold throughout the world economy).
In an April 21 statement, the IMF estimates the value of these toxic assets at US$4.1 trillion globally!
The fact is, though, the actual value of these "assets" is not known. Nor is it known which banks hold the bad debts. The result is a very shaky financial system, in which banks are using bail-out money to repair their own balance sheets rather than make loans to businesses.
The ensuing credit squeeze means a contraction in private investment, meaning growth continues to fall and unemployment continues to rise.
The IMF wants working people to pick up the bill.
"Financial sector support typically entails fiscal costs", the IMF's World Economic Outlook report says. In other words, governments should continue to pour trillions of dollars into private banks in order to make them profitable, so they can begin lending again and the capitalist economy "recovers".
The IMF goes so far as to argue for nationalisation — but only under very constrained circumstances. "In some cases, partial, or even total, government ownership will be required to assure adequate capitalisation and an effective restructuring plan", an April 21 IMF report said. However, "A government should aim to ensure that banks can return to private ownership as expeditiously as possible."
As well as bailing out banks, the IMF also wants governments to directly stimulate the economy. The World Economic Outlook said: "aggressive monetary and particularly fiscal measures are needed to support aggregate demand in the short term, but care must be taken to preserve public debt sustainability over the medium run."
Governments thus have licence to spend, but only on investments of short-term duration. And in the "medium run" government debt will have to be repaid.
Who pays?
This is where the equation for restoring capitalist profitability gets nasty.
It's all very well for a government to stimulate the economy by increasing government spending, the IMF argues. In fact, it's essential.
The Rudd government's handouts to big business via the "Harvey Norman" stimulus package in December and the $42 billion gift to developers and elite private schools (and a paltry $900 to working people) are fine — as long as they're paid back.
Already the knives are out in Canberra. In the May 12 budget, the federal government is likely to shelve its commitment to paid maternity leave. The government has also flagged cuts in public service jobs, with the Australian Taxation Office losing 3000 full-time jobs in order to meet an "efficiency dividend".
What other community services will be closed or wound back as a result of budget cost cutting?
Federal treasurer Wayne Swan told the April 21 ABC's 7.30 Report that the government "will bring down a responsible budget which continues economic stimulus, but — has a commitment to ensuring that when growth returns to trend, that we will start to move back to surplus."
The government has already insisted it will peg real government spending growth at 2% per year (apart from defence). Where will this leave the "education revolution", let alone the spending needed to combat the effects of global warming?
Following the IMF prescription, the federal government is determined to make working people pay for the recession. Apart from spending cuts, it has backed its calls for "wage restraint" by asking the Fair Pay Commission to discount any wage increase that it chooses to give to the lowest paid in July by taking into account the stimulus packages.
What's the alternative?
Even by following the IMF's medicine, the world economy is expected to contract further and to have a "sluggish" recovery. Unemployment will grow. Living standards of working people will fall. Even once the "recovery" starts, there is no guarantee that jobs will return or that an asset "bubble" similar to the sub-prime disaster won't be the result.
However, the government does have a choice. The rules laid down by the IMF are there to protect capital and profitability. What about working people and the environment?
There is nothing to stop the government nationalising the banking system, for instance. Not the phoney nationalisation suggested by the IMF, but placing the banks in public hands to be used as a public service.
The Commonwealth Bank was publicly owned until 1991 — there's no reason that it couldn't be again. The NSW state government maintained a Rural Bank (later State Bank) from 1932 until 1994 (when it was privatised), which offered cheap loans to farmers.
The government could also invest in an ecologically sustainable economy. The transition to 100% renewable energy by 2020, necessary to prevent runaway climate change, could be achieved if funded by long-term government investment.
It could also make serious investment in public housing, public transport, renewed public health and education. All such government spending would "stimulate" the economy and replace jobs lost in the private sector.
Of course, taking such a course would be unpopular with the bosses because it would reduce the possibility of profitable investment — the reason that all government stimulus to date has been temporary and short term.
Implementing such a pro-people, pro-environment policy would demand a break with the rule of capital. It would pose a significant challenge to the profit-first system. If the current government is not up to this challenge, it's up to working people to create a system that is.