Is Generation Afterpay to blame for our lagging economy?

By definition we are not in a recession. Our Economy needs to record two quarters of negative growth to technically be considered a recession. There have been many different economic narratives put forward by various crystal ballers none more than the optimism coming out of the Liberal Government in reference to our economic state and its 2020 forecast. For now, what’s certain is that Productivity is low, Inflation is idling at 1.9 per cent and Wages Growth (is there such a thing?) continues to flatline at an annual pace of 2.3 per cent. Australia’s economic growth has fallen to the lowest level since the global financial crisis but Prime Minister Scott Morrison says he “can’t see” the country falling into recession. Despite his analysis that economic data is trending North it is evident our economy is stuck in second gear even after three rate cuts and a tax rebate of 5.5 Billion. Word coming out of the Reserve Bank is that they are considering a fourth rate cut with some analyst predicting around 25 basis points taking the interest rate from 0.75% to an all-time-low of 0.50%. Consumers have pumped the breaks on spending, Josh Frydenburg says that Australians used the recent tax rebate to pay down debt.

"The Government's goal has always been to be that to put more money in the pockets of the Australian people and it is their choice as to whether they spend or save it," Mr Frydenberg said.

But to whom are they paying that debt to?

In 2015 we saw the emergence of the by-now-pay-later creditors delve into the market place once dominated by the big banks through Visa and Master Credit Cards. Australian born Afterpay ranks among the top companies providing the alternative to the Credit Card alongside Zippay and Humm (Formerly Certegy). These Creditors have very low interest rates with some companies having no interest at all – although their business model is based on the premise that users will not stick to a designated repayment plan and that’s where they stick you with fees. These no interest pay later schemes are becoming very attractive propositions for the average Australian who most economist would rightly agree are up to their neck in household debt, with very little disposable and surplus cash.

This year Afterpay recorded the number one ranking over its competitors with more than 4.6 Million users with the average user provided with a line-on-credit between one and three thousand dollars.

In November shoppers splurged shopping centres and online-retailers for Black Saturday and Cyber Monday sales. In December we should see a stimulated retail sector as shoppers again spend big for Christmas although the Retail Sector is to flatline again in new-year. My conservative analysis is that up to 25 per cent of the $2.9 Billion spent during Black Friday and Cyber Monday have been facilitated by one of the buy now pay later companies accounting for approximately $700 million dollars. Roy Morgan’s annual Christmas retail sales forecasts conducted in conjunction with the Australian Retailers Association (ARA) indicate Australians will spend over $52.7 billion across retail stores during the Christmas trading period. Again, my conservative analysis is that 25% per cent is facilitated by Afterpay or one of their competitors rounding up to approximately $10.7 billion.

More and more Australians during the festive season have racked up further household debt which may come at the detriment of our economy in the first and second quarter of 2020. We may not see our economy stimulated until the debt owed to the likes of Afterpay is repaid, the government may need to resort to unconventional fiscal and monetary policy in 2020 in a bid to grease the wheels of our economy. The Morrison Government hold the ultimate economic lever – infrastructure investment but may not pull the trigger as they intend to deliver on their election promise of a budget surplus. With the recent bushfires across New South Wales and Victoria Federal response measures continue to erode the budget surplus. Either way opposition leader Anthony Albanese and Shadow Treasurer Jim Chalmers will get a free-kick from the conservative Government if they fail to deliver on that election promise and the state of our economy continues. The Morrison Government needs to be rationale and look to strike the right balance between Good Economics Vs Good Politics they may need to discount the later.

Opinion piece of Troyson Bassani