Too much of a good thing?

One could be forgiven for thinking Australia was in bad shape. Reading the opinion pages of almost any daily paper will fill one with a sense that our economy is amongst the worst in the world, with an overburdening debt that is dangerous and irresponsible. The economic reality is that there have been only two quarters of GDP decline since 2007 (in 2009 and 2011), and our economy has grown 13% since the beginning of 2007. Few other economies can match that performance. Government debt is about 13% of GDP, compared to other major economies – including the US and the UK – with debt around 90% of GDP (and higher). We haven’t had a recession in over 20 years, yet the prevailing sentiment is that we have been through hard times. Perhaps we have had it too good.

Without wanting to walk into the trap of a previous treasurer who spoke of “the recession we had to have,” there is a psychological aspect of this which is worth contemplating. We have benefited as a nation from a long period of growth and prosperity, in recent years largely on the back of huge mineral exports. There will be a generation of workers who have never known a recession during their lifetime (despite the fact that in 2007 unemployment rose from 4% to 5.7%). There is an implicit presumption that things will always get better. A recession tends to remind us that there are times when we need to temper our expectations: we pull in our collective belts and realise that though there are some things that me might want, we could really do without them.

Recessions tend to bring correctives, and provide the atmosphere in which they can be justified. Instead we expect that our government will continue to extend entitlements to us which we arguably neither can afford as a nation, nor need. Can we afford to subsidise taxpayers through negative gearing to the extent of $13 billion? Or private health insurance at nearly $6 billion? Living with an attitude that things will only continue to get better compromises any attempt to justify removing such subsidies (which are enjoyed mostly by the more wealthy members of society).

A complacency born of continued good economic times has allowed governments to appear to be generous with handouts rather than tackle important infrastructure requirements which compromise our ability to maintain a healthy economy into the future. And when adjustments are suggested to improve overall outcomes, the inevitable outcry is focussed on those who will lose money as a result (witness the school funding debate), reflecting the assumption that we can always afford more.

And yet we also complain about the budget being in deficit… one of the side-effects of this continued generosity flowing to us.

While one would never wish a recession upon a nation, it does serve as a welcome corrective to our national psyche, helping us to realise that we can’t continue to have it all. One thing is for certain, we don’t seem to have political leaders with the gumption to step forward and challenge that assumption.