Um, what's a recession?

You may have heard some talk recently about the possibility of a recession and while we’re not there yet, let’s talk about what that actually means. 

So what’s a recession?  

Basically, it’s a period of time where economic activity declines and many industries experience poor economic growth. People stop spending, business profits decrease, and manufacturing decreases due to reduced demand. Inflation and interest rates can decrease and the price for goods and services can stagnate for a short period, usually a few months to a year or so.  

What causes a recession?  

Most recessions are caused by a combination of things. High interest rates can trigger a recession because they limit the amount of money people can borrow. Inflation, the general increase in prices of goods and services, can also be a trigger for a recession because as things cost more typical incomes can buy less. Low consumer confidence can also impact whether a recession occurs because if people (consumers) think the economy is bad they spend less money.  

What happens during a recession?  

During a recession, the unemployment rate increases and wage growth can halt. People are also more at risk of experiencing bankruptcy or defaulting on loans during this time. Businesses experience decreased sales and profit because people have less money to spend and this decrease in demand decreases manufacturing. Interest rates as well as the value of everything produced by a country (called the gross domestic product) can fall too.  

The economy will recover and there will be increased economic activity again. During the recovery phase after a recession Government will usually create policies that address the causes of the recent recession and reallocate resources to support people and businesses.

It's state budget time - here's five things you should know

Every year there’s a mix of excitement and frustration in the air when it comes to budget time, but what do we need to know in order to understand what comes out of it?

 1. A budget is basically the government deciding where they’ll put funding and how much they’re going to spend, as well as how much money they’re bringing in.

2. Two words you’ll hear a lot are ‘deficit’ and ‘surplus’. This just means that either the Government needs to take on debt to cover spending over the amount of money taxes and investments bring in (deficit) or taxes and investments more than cover spending and there is money left over (surplus).

3. The need to deliver a surplus is seriously exaggerated in Australia and it distracts from what could be the priority of government spending, limiting Australia’s ability to address some of our biggest challenges like climate change, growing generational inequality, the housing crisis and more.

A government budget isn’t the same as a household or personal budget, so it’s not the same as taking on debt as an individual. It is true that the government cannot spend endlessly because eventually it would impact things like inflation, but it can still shift priority away from delivering a surplus and toward investments for a sustainable and fair future.

4. The budget can definitely feel like an overwhelmingly dry document full of massive numbers, but amongst that it out outlines the current government’s future plans for things like climate action, education, mental health, housing and everything in between.

5. At the end of the day this is just the funding, not that this isn’t important, but in order to make calls on who has ‘won’ and who has ‘lost’ we need to the see the policy it is supporting.

We have no real idea of what a lot of this will look like, which is a significant flaw in looking at a budget through the lens of ‘winners and losers’ which you’ll probably see a lot of.

Keep an eye on The Smashed Avocado and our socials for our take on the budget, coming soon!