The Morrison government is signalling it is likely to proceed with planned cuts to income support this month despite the latest national accounts confirming that Australia is in recession for the first time in nearly 30 years. The snapshot released by the Australian Bureau of Statistics on Wednesday showed the biggest quarterly contraction in economic growth on record. Gross domestic product fell 7% in the June quarter, after a fall of 0.3% in the March quarter. Consumption by Australian households fell off a cliff, down 12.1% in the June quarter, shaving 6.7 points off GDP. The ABS says household expenditure fell 2.6% during the 2019-20 financial year, which is the first annual fall in recorded history. Spending on services also fell 17.6% in the quarter as state governments imposed shutdowns to flatten the curve of coronavirus infections, shutting businesses and restricting mobility in the population. Reflecting the restrictions, and consumer caution, the household saving to income ratio also rose to 19.8%, which is the highest rate since June 1974. But the ABS says government support to businesses through the payment of subsidies resulted in a strong rise in profits during the quarter. There was also a 41.6% increase in social assistance benefits, reflecting the income support rolled out during the pandemic. The prime minister described Wednesday’s confirmation that the country was in recession as a “devastating day for Australia” and “an awful and heart-breaking blow to Australians and their families all around the country”. Scott Morrison told the parliament the government had acted promptly when the pandemic hit to protect lives and livelihoods “and cushion the heavy economic blow” inflicted by Covid-19 and, as a consequence, Australia had “avoided even more severe impacts as we’ve seen in other places”. The government says it will use the budget in October to lay out a growth agenda to drive economic recovery post-Covid. It says measures will include tax cuts, infrastructure spending, labour market deregulation and cutting regulations for business. The treasurer, Josh Frydenberg, also on Wednesday urged state governments to provide their own economic stimulus programs to support aggregate demand in the economy. He said the June quarter national accounts had not captured the impact of the stage-four lockdowns in Victoria so there was bad news still to come. In the lead-up to Wednesday’s national accounts figures, the government has stepped up pressure on the states to wind back restrictions, including border closures. Morrison is attempting to secure agreement from New South Wales and Victoria on the definition of a coronavirus hotspot as part of a strategy to persuade other premiers to scrap border closures in favour of localised lockdowns to control outbreaks. Bit given the sharp contraction in growth, heralding the most serious economic disruption since the second world war, Labor pursued Morrison about whether the government intended to proceed with cutting the jobkeeper and jobseeker payments this month. The Labor leader, Anthony Albanese, noted that a million Australians are out of work and a further 400,000 would be unemployed by Christmas: “Given Australia is in the worst recession in almost a century, isn’t this the worst time for the prime minister to be cutting jobkeeper, cutting jobseeker and cutting the wages of some of the poorest workers in this country?” Morrison and Frydenberg accused Labor of playing politics, because the opposition has previously endorsed tapering the payments. Frydenberg said the government’s position on income support had been clear – the programs were “temporary, it was targeted, and … there would be a transition”. The prime minister said the government’s plan was to move into the “next phase” of income support, in which fewer businesses would need government help. But while signalling that support needed to be wound down, Morrison did leave the door open to adjusting the payments as circumstances required. “We will continue to calibrate these measures, as we have always done, in response to the economic circumstances that we face.” The ABS noted that compensation of employees fell by a record 2.5% in the June quarter. “The [compensation of employees] share of total factor income fell below 50%, the first time since September quarter 1959,” it said. The shadow treasurer, Jim Chalmers, said the wages results were “incredibly troubling” and Covid-19 had accelerated the insecure work crisis that existed “well before” the pandemic. He said given rising unemployment, now was the “worst time to be winding back” economic supports.