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Recession Rudd had to have

By John Black - posted Friday, 5 December 2008

If the Government is seriously concerned about jobs, why is it re-regulating the labour market and introducing an emissions trading scheme that will shovel manufacturing jobs overseas to countries that don't have an ETS?

I guess it all makes sense somewhere, at least to a Prime Minister who kept losing his economic briefings before the last election and is now unfortunately trying to read the damn things, and to a Treasurer who reads them but can't remember them.

The strategy seems to be: we'll spend the Howard surplus in a weekend, and rort the housing starts to keep us out of recession until June 30 next year, then low interest rates will cut into boost demand until the end of 2009, at which time the devalued dollar will cut in for 2010 and boost economic growth, at which point we run for re-election with the economy on the mend.


The problems will arise if the dollar drops so low in 2010 through a slump in our terms of trade to our long-run average, driven by the Chinese economic slowdown and an increase in the cost of servicing our external liabilities, that the Reserve Bank will lift rates anyway. By this time, Chinese companies that were refused approval this year to buy into our resources sector will be receiving Government approval to buy the same assets for a fraction of the price.

Economically, the chattering classes keep waffling on about definitions of recession being two quarters of economic decline. Another definition used by economists is an increase of unemployment of 1.5 per cent over 12 months. The advantage of this definition is that it has a spatial dimension. This is a big country with large discrete regions where economic growth can vary widely, with one region in recession and others doing quite nicely.

For example, we all know that New South Wales is an economic basket case, so what was the regional or spatial picture during our last recession in the early 1990s, and what is it now?

When we break Australia down into its major statistical regions and rank the rise in unemployment, we see that the last recession had unemployment rising in calendar 1991 by up to 9.4 per cent in north-western Melbourne; 7.7 per cent in Canterbury Bankstown and 6.1 per cent in Fairfield Liverpool, both in western Sydney; 5.6 per cent around Launceston, and 5.5 per cent in Wide Bay-Burnett on the central Queensland coast. At this time, national unemployment - from December '90 to December '91 - had increased by 2.4 per cent.

But at the same time, large parts of Queensland and Western Australia were unaffected, and north-western Queensland in fact had a decline in unemployment of 4.1 per cent.

So, we had a national growth in unemployment of 2.4 per cent, a real recession and unemployment growth ranging from minus 4.1 per cent in Queensland to plus 9.4 per cent in north-western Melbourne.


In the past 12 months, from October 2007 to October 2008, unemployment nationally has been steady at 4.3 per cent, with regional unemployment growth starting from minus 3.5 per cent in the Illawarra, on the south coast of NSW, and in Hobart, and even minus 2.2per cent in north-eastern Melbourne.

In fact, many of the old rust belt industrial regions such as Newcastle and Wollongong, which were hit for six in the early '90s, have been doing quite nicely in the past 12 months, although participation rates are low.

So where has the pain been growing? Despite no national increase in the jobless figures, spatial recessions have hit the usual suspects in central western Sydney (4.5 per cent unemployment growth), Fairfield Liverpool 2.5 per cent, Wide Bay-Burnett 1.7 per cent and Canterbury Bankstown 1.6 per cent.

But they have also clobbered lower northern Sydney, 2.1 per cent; eastern suburbs, 2 per cent; central northern Sydney, 1.6 per cent. These three regions had unemployment levels in October 2008 of 3.4 per cent, 2.7 per cent and 4.2 per cent respectively. The pain is still low in absolute terms, as unemployment in these wealthier regions can be close to zero in normal years, but in relative terms its decline is more severe than in most of Australia.

When unemployment starts to climb next year, towards the 8 per cent-plus inherited by John Howard, which took him 10 years to get down to present levels, then the Rudd Government can at least be assured that the top income quartile suburbs are sharing the disease, if not the cure.

So the Rudd recession is already real in some regions, and it's hitting some of Sydney's wealthiest suburbs, which have suffered the multiple indignities of the global financial meltdown: a state government that has reinforced their regional recession with targeted tax increases and a federal government that has means-tested them out of their fiscal spending binge, effectively frozen their assets in non-bank investments and then suggested they wander off to the local Centrelink if they're short of the weekly housekeeping. I suspect they'd rather pawn the pearls.

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First published in The Australian on December 3, 2008.

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About the Author

John Black is a former Labor Party senator and chief executive of Australian Development Strategies.

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