Yesterday’s images of long lines of jobless people snaking out of Centrelink offices — exacerbated by a truly unforgivable IT stuff-up — might be just a taste of the economic chaos to come, unless the government goes all out and produces an economic survival package designed to keep businesses employing workers over the next few months.
The government’s graduated approach, both on the health and economic fronts, has been justifiable until now. The two stimulus packages haven’t been enough, but when seen as components of an escalating response they were valid.
But two things are now clear. First: the continuing spread of the virus makes some form of lockdown, which will simply shutter whole sections of the economy, inevitable. This will compound the already massive economic damage — 800,000 people in the food and beverage service sector now face unemployment.
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Australia looks like it is on a similar path to that of the UK, where Boris Johnson has just moved to lockdown this morning for at least three weeks. His government has put in place a wage support package of 80% so that companies keep workers on their payroll.
Second: the government faces difficulties in rolling out support for businesses in any kind of rapid timeframe. The measures announced in Sunday’s second package are not available for four weeks — which may well be beyond the life expectancy of many small and medium businesses, and even some large corporations.
We know the kinds of numbers this involves. Providing a 50% subsidy for all workers outside the health and education sectors would cost around $65 billion a quarter. Providing 80% would cost $102 billion a quarter. It’s likely at least two quarters will be required.
Firms that remain profitable — supermarkets, transport companies, miners, some manufacturers, primary producers — and multinationals would be exempt. The cost would be around $130 billion to essentially freeze the economy in cryogenic suspension until it’s safe enough to allow normal economic activity to resume. It would be a de facto part-nationalisation of much of the economy.
The alternative is not merely massive layoffs of a kind that would exceed even the early-1990s recession — which left a deep scar on a generation, and inflicted untold misery on tens of thousands of middle aged workers — but widespread business collapses, removing the basic economic infrastructure of Australian capitalism, which will have to be rebuilt in the aftermath of the virus amid the wreckage of bankruptcy, debt and risk-aversion.
Those collapses would also inflict major damage on the financial system, where banks and other lenders also face pressure from a likely significant rise in residential mortgage defaults as unemployment takes hold.
It would also allow governments to adopt whatever lockdown measures they think will be most efficacious, unfettered by economic considerations, rather than trying to balance the health and economic impacts of decisions and, as it’s turned out, compromising both.
The resulting debt will have to be paid off for decades, even based on current low bond rates. But it would prevent permanent damage to Australia’s economic growth potential.
What the government needs now is a wow factor that grabs the attention of Australians and assures them that the government will do whatever it takes to protect the economy as we enter weeks and possibly months of shutdown. More piecemeal packages, however big, won’t do the job.
If BoJo can do it, why not ScoMo?