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Mixed picture for Australian economy

  • 23 July 2020
The full economic impact of the coronavirus lockdowns will not be fully felt until the end of the year, but it will be devastating. The Treasurer, Josh Frydenberg, is already estimating that the effective employment rate is 13.3 per cent; it may be headed for as high as 20 per cent. It raises a question, not just in Australia, but in many developed countries. Will there be a significant middle class left after such economic destruction?

In Australia, the picture is mixed. It is stating the obvious to say that the harm done to small and medium size enterprises (SMEs) will greatly reduce employment and wealth creation. Typically, Australia loses annually about 300,000 businesses, or one in eight. This year, and into 2021, that figure is expected to rise to 450,000, significantly reducing the number of people employed in the private sector.

Yet there is another side to the equation: the large accumulation of wealth in superannuation funds in Australia. According to the OECD, assets in Australia’s retirement vehicles equate with 135 per cent of GDP. That is about the same as in America — in that country the assets are far more concentrated in the hands of the top one per cent — and it ranks, globally, only behind Denmark, the Netherlands and Iceland (in New Zealand the level is 27.4 per cent).

It means that the middle classes in Australia are, to some extent, investors as well as income earners and tax payers — in much the same way that unions went from being principally defenders of workers’ rights and conditions to financial managers of the industry super funds.

It is true that superannuants, aside from the recent exemptions, have to wait until they are older before they can benefit from their investments. But it is a form of system-wide spreading of wealth that strengthens the middle class and provides an important economic buffer. With the assets approximately doubling every decade, it will progressively take pressure off the government to fund the aged pension, making it more feasible to provide a better financial safety net for those on lower, or no, incomes.

Yet if there is some financial protection for the existing middle class, the crisis points to some darker questions about what work opportunities will face younger workers, many of whose livelihoods have been decimated by the shut downs. For one thing, as has been extensively documented, the so-called ‘gig’ economy is