For the first time in more than three decades, Australia faces the possibility of a recession

It's hard to overstate the pain that Australians felt when the 1990 recession hit.Mortgage rates were at 17%.The unemployment rate shot up to over 11%.Youth unemployment, if you can believe it, was at 30 % and even higher at different points during that recession.Yet here we are today, 36 years on.You have to be 53 years of age or older to have had an adult memory of what happened during the 1990 recession.

Millions of Australians weren't even born yet who now have the vote, and millions more only have the faintest memory of those times from their time as a child.Yet here we are, Australia today, potentially on the cusp of a 1990s style recession.That's not a rhetorical flourish from me, that's what the Reserve Bank is warning is the risk to the economy right now.The Assistant Governor of the RBA, Sarah Hunter, when being quizzed about where the economy was at, gave the stark warning that if we're not careful and if the right steps aren't taken to rein inflation in, her warning is that a rerun of the 1990s -style recession may well be on the cards.That is a living nightmare for some, and it is something that millions of voters can't even understand or realise the significance of just how bad things can get.There is a lazy argument that what happened in 1990 won't happen again because we have features in place that prevent, for example, mortgage rates getting to those 17 % numbers.

But it is a lazy argument for one simple reason.House prices relative to incomes in 1990 were nothing like they are today.We know that the housing market has skyrocketed in just the last couple of decades and we know that wages haven't kept up with these rising house prices.We also know that supply is a problem, and inflation, whilst it might not need to match what happened just prior to 1990, it is running too high, and in Australia it is running higher than in like -for -like countries around the world.

The Reserve Bank's worry, which is shared by a ton of economists in this country, is that the levers of monetary policy are working contrary the levers of fiscal policy.Now what does that mean?Simply put, the Reserve Bank controls monetary policy and essentially, for the most part, the federal government and state governments control fiscal policy settings when they bring down their budgets, for example.The Reserve Bank is putting interest rates up to try to rein in inflation.And it's worried that government spending at both state and commonwealth levels is going against that.We have record spending.

at Commonwealth and state levels.While the federal government likes to argue that it's raining some spending in, we still have spending that is multiples higher than it was prior to the pandemic.

We have baked in money in the system being spent by government, which isn't just racking up debt, but it's feeding inflation.

And it's doing it at a time where the international crisis around Iran and fuel prices is also stoking inflation.That's a double whammy that the Reserve Bank wants to get under control.And its worry is that in trying to get it under control, like it or not, it might need to force a recession.The technical definitionof a recession is when a country has two consecutive quarters of economic downturn.No economic growth, in other words, for half a year.

Now, that's a technical recession.We had one of them during the course of the COVID pandemic.It's the only one we've had in this country since the 1990 recession.But it's not comparable.COVID was a one -off pandemic moment.The government spent up big at the time to save jobs.

It was an unusual environment that we knew would be limited till the pandemic was brought under control.As a result, the racking up of debt and the spending by government was seen as something that could be endured in the short term.Equally, We had at the time the ability for the Reserve Bank to really bring down interest rates because inflation at that point in time wasn't too high.Those were very different circumstances to where we are now if an inflation follows and if as a result of ongoing inflation a recession becomes a reality.The reason the RBA and others worry that a lot of voters don't realise how bad a recession can be is because it's unusual for us here in Australia.Our politicians used to spruik the fact that we hadn't had a recession since 1990.

When the rest of the world found out what a real recession is like during the global financial crisis, we managed to avoid it.There's bipartisan congratulations for that length of economic good stewardship, if you like, in this country.It was the Rudd government that avoided a recession around the GFC.It was the Howard government that avoided it around the Asian economic crisis in the late 1990s.And it was the Scott Morrison government, with support from the opposition it must be said,that managed to get us through the very brief recession during the COVID pandemic.

But out the other side of that, inflation has been a problem that government hasn't gotten back under control.And the spending that goes with that, in a climate of rising debt, remembering this country had no net debt when John Howard left office, those factors coming together are making the Reserve Bank put rates up to get inflation down.And it's so concerned about that, what you might call a wages price spiral, that the desperation to bring inflation down is such that it may cause a recession as a potential lesser of evils.That might sound strange, this idea of a recession being the lesser of evils.I guess it's a version of what Paul Keating said back in 1990 when the debilitating recession hit, and he declared that it was the recession we needed to have.Those words didn't go down very well politically with a lot of Australians, but he wasn't wrong.

It was a recession we needed to bring those rates down, to bring what was, if you like, an out -of -control heating of the economy back under control.But we flipped too far the other way and the pain was long -lasting.I'm not talking months, I'm talking years for millions of Australians.Those figures are pretty alarming about interest rates, about unemployment in double digits and youth unemployment being borderline impossible to deal with.Adding to the fears of what a recession in 2026 or perhaps next year might look like is the fact that we now have some uncertainty around some of the policy changes in the budget this year.What's happened to negative gearing, capital gains tax cuts,

quasi -death taxes, and a host of other adjustments including to trusts and so forth, these have put in, if you like, economic uncertainty in the mix.It's not a partisan attack on Labor for looking at these reforms.Some of these reforms are perhaps long overdue.Some of them are perhaps a good idea if they were in a wider economic reform context or if it wasn't happening right now in the deeply difficult time we're in.So I guess the big question is what, if anything, can we do to avoid a 1990s style recession?Well the message from the RBA is pretty clear.

Inflation needs to be brought under control.And if it can't be brought under control in a managed way, it'll have to be done with the blunt force instrument of monetary policy and rising interest rates.And that is what risks recession.If it can be done less painfully than that, and I'm talking about less government spending, I'm talking about attempting to pay down debt, I'm talking about avoiding a sort of consumer culture, that only feeds the inflation that is already a problem because of externalities in the global economy.If we can do it the right way, then we can potentially avoid the recession and have what economists call a soft landing.The government would want that every bit as much as Australians should want it.

both those who know how bad recessions can be and those who don't want to know how bad recessions can be.Governments want what we want because they will be judged, potentially, on what happens if we go into recession.And it'd be fair to say that politics becomes every bit as fraught as the daily life ofAustralians if we end up in another recession.