NS Group Pandemic Series No. 3: Economic protection versus nation building /
25 Apr 2020
As the widespread impacts of COVID-19 rapidly swept across the nation, equally rapid was the Australian Government’s $320bn fiscal support to keep people in jobs and the economy running, albeit at a very different pace.
The questions surrounding what impact this stimulus will have, and what the ‘other side’ will look like once the country comes out of hibernation, remain to be seen.
Revisiting the nation’s last efforts in economic protection – the Global Financial Crisis (GFC) – Australia wasn’t immune when ‘Black Friday’ hit on 10 October 2008. At the time, the Australian Government took swift, pivotal action to redirect the economy to defend the country from immediate financial ruin.
The Government committed $38.3bn to economic protection across 13 initiatives, including cash payments of between $1,000 and $1,400 per person. As the cash effect on the economy would only be short-lived, the Government quickly turned towards nation building, motivating the workforce with purpose and promise through a further $56bn in new infrastructure.
Coming into the GFC in a strong financial position and combined with government stimulus support, plus buoyed by strong export trade and mining sectors, Australia came out with good standing compared to other international counterparts.
The Senate Economics Reference Committee declared success by September 2009, further evidenced by Australia being the only advanced economy to report positive GDP growth for the 2009 year through to June .
Source: International Monetary Fund 
Whilst we all recognise that the current COVID-19 environment is a different battle, many of the hallmarks are quite similar: ASX crash, skyrocketing unemployment and low consumer spending. However, what the GFC didn’t have were immobilised markets, border controls or a health crisis.
The International Monetary Fund (IMF) is forecasting a coronavirus-driven 2020 global recession with recovery in 2021. Australia managed to maintain a relatively steady position through the GFC, but the IMF is forecasting a 6.7% downturn for our GDP in 2020 and a rebound by 6.1% in 2021 .
Source: Grattan Institute 
Unfortunately, the road to recovery seems likely to be much longer than initially anticipated. Many see this ‘V-shaped’ recovery prediction as being too optimistic and how this sharp recovery will be supported is unclear.
The unprecedented $320bn commitment to economic protection has given Australians welcome support and hope in a recovery post COVID-19. Many applauded the Prime Minister’s ‘not mucking around’ mentality, championing our confidence through cash to ensure that we’re ready for the return to work and some semblance of normality.
Is this ‘dash for cash’ a direct lesson learned from the GFC successes and, if so, what happens after October when the JobKeeper payments end?
As the revered researcher and author, James Collins, wrote in his book ‘Good to Great’ on the ‘flywheel effect’:
“In building a great company or social sector enterprise, there is no single defining action, no grand program, no one killer innovation, no solitary lucky break, no miracle moment. Rather, the process resembles relentlessly pushing a giant, heavy flywheel, turn upon turn, building momentum until a point of breakthrough, and beyond.”
It’s undeniable that $320bn is a great first push but, if the flywheel is left to its own devices, it’ll surely slow and tumble.
In Australia’s history, economic protection measures have generally been followed by nation building initiatives, reflected by the $38.3bn commitment to economic protection followed by $56bn for nation building post-GFC.
The current $320bn stimulus for economic protection is 8.4 times greater than the corresponding GFC response, placing the Government in substantial debt to prop up the economy. However, the country can’t afford to apply the same 8.4 multiplier to the nation building commitment seen in the GFC.
Of the many options being tabled, including supporting tax and regulation changes to promote business activity, the infrastructure and property sectors have been identified as important drivers for jobs and Australian investment.
Tasked with shaping the nation’s economic recovery as Chairman of the National COVID-19 Co-ordination Commission, Neville Power has said that part of his work will be helping to identify and promote major projects which can help restart the national economy.
Mr Power warned against sinking public money into infrastructure projects that aren’t commercially viable. Furthermore, he said the projects deserving of support would be those that can be built with private funds rather than heavy government investment .
Leveraging the currently cashed-up private sector will see a new emergence of partnerships to get the economic flywheel going. Typical partnership solutions may include: an expansion of integrated transport development to more locations, scheme level sustainability initiatives, and health and social infrastructure such as recreation facilities.
It’ll be interesting to see if these partnerships develop and how quickly they’re formed to achieve the desired results. A new era of collaboration may be ahead.
ABOUT THE NS GROUP ‘PANDEMIC SERIES’
NS Group is a market leader in the property and construction industry, helping clients to re-imagine the future of their new and existing portfolios in support of their business’ goals. While COVID-19 has created uncertainty around what happens today, tomorrow and into the future, we do know that time waits for no one.
As industry leaders and guided by our purpose to ‘connect, empower and lead people to create great places’, it’s in our DNA to assist in any way that we can. Therefore, we’ve tasked ourselves with taking the time to review the situation, understand the facts, provoke thoughts and guide action so that we all make our way out of this together.
Disclaimer: NS Group’s ‘Pandemic Series’ is a thought piece. The information provided has been sourced and collated from various online resources and is correct as at the date of release. This information is intended to serve as general information purposes only. NS Group does not guarantee, and accepts no legal liability whatsoever arising from, or connected to, the use of this information or from any linked site. We recommend that you seek appropriate independent professional advice before making any decisions based on the information provided.