But revisions by the ABS’ army of statisticians over the years mean Keating did not have to make that statement on that particularly hot, late November day. Today, the official records show the economy grew in the June quarter while the contraction in September was much more modest.
The recession would come. Negative growth was recorded in the March and June quarters of the following year. But at the time, after a huge increase in the number of people out of work, it certainly felt like a recession when Keating made his comment.
The 1990-91 period was, until this year, the last time Australia endured a recession. The internet did not exist, nor the iPhone nor Instagram influencers.
Even as the world went through the Asian financial crisis, the dot.com bust and the Global Financial Crisis, Australia was able to avoid two consecutive negative quarters of growth. Australia was proclaimed the “wonder down under” for its near-30-year run without recession.
But it has come to an end with the coronavirus pandemic. In the March quarter, the economy contracted by 0.3 per cent, with economists and the federal Treasury expecting a recession to be confirmed with a record 3-5 per cent contraction through the just-completed June quarter.
Treasurer Josh Frydenberg has already conceded the point. On Thursday, an economic statement from him will confirm the nation’s first recession in 30 years with a toll measured in armies of unemployed and an unimaginably large budget deficit.
Professor Bob Gregory, one of the nation’s most respected economists, was on the Reserve Bank board between 1985 and 1995.
He says the reasons for the 1990-91 recession and this year’s are vastly different. Then, the bank had taken official interest rates to 18 per cent in late 1989 in an effort to kill inflation.
While Keating talked about the recession Australia had to have, it was not alone. Almost every rich country went into recession at the same time but Australia’s was longer and deeper, largely due to the extraordinarily tight monetary policy.
This time, the Reserve Bank and government are beholden to a disease.
“The degree of uncertainty, I think, is very high,” he says.
Gregory says the high interest rates of the past recession hurt some of the high-flying entrepreneurs of the period such as Alan Bond. The RBA focused on what was happening to investment levels.
The RBA board discussion this time would be very different with the recession hitting younger Australians in the accommodation, hospitality, tourism and retail sectors.
“It’s not really the same in terms of impact. I couldn’t imagine going to the (RBA) board talking about what’s happening to the local coffee place or travel agent, but that’s what is going on,” Gregory says.
Gregory shared a seat around the RBA table with then ACTU national secretary Bill Kelty who remembers the human toll of the recession.
The jobless rate had fallen to a nine-year low of 5.8 per cent in December 1989. By November the following year, it had already climbed to 7.9 per cent, on its way to 11.2 per cent in December 1992.
The worst hit sector was manufacturing which had gone into that recession employing more than 1.1 million people. Today, there are just 853,000 people in manufacturing despite a 5 million increase in the number of working Australians.
“The unemployment rate was like being in a hell hole. We were going to get out of it, we had to get out of it, but at the time it was a hell hole,” says Kelty.
While the Nineties recession is remembered for high interest rates and high unemployment, it was also a catalyst for major policy reforms in areas from industrial relations to competition.
Kelty says the Morrison government needs to pick five key areas to build its own reform agenda to help drive the economy out of and beyond the recession. They include boosting the higher education sector, dealing with climate change and resetting relations with China.
“You’ve got to have a plan, a mindset, for where you’re going after the recession,” he says.
“They should be saying, these are the five things we’re going to do, the five things we’re going to focus on.”
Watching on at the Keating government’s handling of the recession was then Liberal leader, John Hewson.
A former RBA economist and adviser to Liberal treasurers Phillip Lynch and John Howard, Hewson argues the 1990-91 recession was made worse in part by a federal Treasury that was trying to hold the line on government spending.
The mindset of the 1980s, of keeping a lid on spending to bring the budget into surplus, was continued even as economic activity collapsed. The pressure was put onto the Reserve Bank.
Globally, central banks learnt from the Nineties recession starting with the US Federal Reserve’s easy monetary policy following the dot.com bust of the early 2000s and then into the Global Financial Crisis with the liquidity injections it carried out to deal with the recession caused by the crisis.
Central banks around the world now sit on huge volumes of government debt while they have slashed interest rates to record lows. Some have taken them negative.
According to Hewson, this gives governments the opportunity to embark on substantial reform, particularly in the area of climate change, which could deliver long-term environmental and economic gains to the country.
“I’ve never seen a better opportunity for us to make that sort of change,” he says.
Hewson believes the chance on substantial tax reform has to be taken now.
The man who famously lost the 1993 election championing a GST argues now is the time to overhaul the entire tax system including tax expenditures.
Whatever policy remedies, Melbourne University economist John Freebairn says it is going to take “two to five years” for the nation to properly recover from the current recession.
Through the 1990-91 recession, the Reserve Bank cut official interest rates by 10 percentage points. This time, the bank had rates at 0.75 per cent before the pandemic struck.
They are now at 0.25 per cent with the bank signalling it could be years before they are increased.
Professor Freebairn says with the RBA unable to boost the economy through more rate cuts, the heavy policy lifting rests on the shoulders of the Morrison government.
Infrastructure investment should be on the agenda, he says, arguing projects already vetted by Infrastructure Australia need to be targeted. Tax reform, rather than simple tax cuts, also had to be examined.
“The big tax reforms of Hawke-Keating and Howard-Costello actually added up as net payments to taxpayers. People were bribed but the debt cost wasn’t really considered,” he says.
“We need to use the fiscal deficit that we’re going to have to carry out real tax reform rather than just tax cuts.”
Productivity reforms, such as those unleashed under the Hawke-Keating years, also have to be part of the agenda.
But Professor Freebairn cautions that productivity enhancements, in areas such as education or health, could also mean a loss of jobs.
“Productivity is job destruction and job creation. You can see the job destruction easily but you don’t see the creation as easily,” he says.
Nicholas Gruen had been an adviser to Labor industry minister John Button in the 1980s before moving to the office of John Dawkins who was made treasurer by Paul Keating in December 1991.
He remembers expecting Treasury, in the depths of a recession, to work through the Christmas period on major policy initiatives. Instead, most went on their usual January holidays.
Treasury and Finance took a budget-like approach to spending initiatives from other departments aimed at getting Australia out of recession. Such was the reluctance to spend, Treasury worked out it had been too tough with its first suite of policy responses.
The cost of that miscalculation was borne by the unemployed.
Dr Gruen recalls that the infrastructure spending that was put in place delivered long-term benefits but it took so long to make a real difference.
“That was one of the key lessons Treasury learned from that recession. It’s why they were much different during the GFC and in handling the coronavirus,” he says.
Gruen says even a small amount of government spending in experimental or unusual ways could help the economy, citing a GFC program of $30 million in grants that were brought forward for research purposes.
The long-term benefits of research in everything from hard science to sharing data from mineral drilling cores could be bought very cheaply.
The other major player in the recession and through recovery is the Reserve Bank, with Gruen saying it has to become more adventurous in its policy agenda rather than fretting over what might be around the corner.
“There’s a danger with crystal ball gazing — the crystal ball gets foggy,” he says.
Outside of the direct policy responses that governments and the Reserve Bank can take is the question of the global economic situation and the nature of the pandemic.
Even before the advent of the health crisis, productivity had been slipping in most rich nations while interest rates had been abnormally low.
In Australia, households are still carrying record levels of debt. Many behavioural economists believe the pandemic will change the habits of consumers, making them more conservative in nature.
Whereas the nation’s manufacturing sector was cruelled by the 1990-91 recession, this time it may be a retail sector that is forced into serious change that could see much higher levels of online sales penetration.
Another outstanding issue is immigration and population growth.
During the early Nineties, Australia’s population growth almost halved as fewer migrants moved to the country. At the margins, it worsened the recession.
Net overseas migration is tipped to fall by 85 per cent this year. In June, the number of permanent migrants into Australia was 95 per cent or 100,000 down on the same month in 2019.
Bob Kelty notes the tensions between China and the United States, and particularly this year’s presidential election, make it even more difficult to correctly map a strategy out of the economic darkness.
Professor Gregory says the relationship with China and immigration were the two biggest factors that will play a pivotal role in how Australia emerges from the recession.
Then there is the coronavirus itself. As Melbourne’s recent lockdown shows, the virus moves silently but quickly.
Ultimately though, Professor Gregory says any economic policy choices will be limited by the coronavirus.
“When I think about COVID, I always get back to the economy and the trade-off that’s taking place,” he says.
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Shane is a senior economics correspondent for The Age and The Sydney Morning Herald.