As entire industries are shuttered and hundreds of thousands of people find themselves out of a job, the government won’t even think about a change in its economic strategy, for bureaucratic and — seemingly — ideological reasons.
The combined approach of the government and the RBA to the economic side of the crisis has three parts: prop up demand by pumping money to people likely to spend it; expand the safety net governments have been assiduously shrinking for jobseekers in recent decades, which will help with the first part; and try to keep small and medium companies going through a combination of much cheaper, much more easily available and partly guaranteed lending and a small amount of cash based on the size of the payroll.
But the balance of the third part — with a $100 billion-plus provided for lending but only around $32 billion in cash for business — is badly askew and needs to be reversed.
Right now a vast number of small and medium business aren’t in a position to borrow because they are shut, or have lost the bulk of their revenue.
Most of the hospitality industry, the tourism industry, a huge number of personal services business have already shut and have no idea when or if they will reopen.
Non-essential retail (I mean really essential, not Morrison-essential — the essential you have when you’re not having essential) is next, when governments finish the farce of dictating hair-cut appointment length.
Construction and non-essential manufacturing are candidates for closure as well. Hundreds of thousands of business that won’t be in a position to borrow, at any interest rate, because they don’t know how long they’ll be shut down for or what awaits them when the economy emerges from its coronavirus coma.
But the government’s preferred option, seemingly, is that those businesses shut and their workers, and even owners, join the dole queues, rather than trying to keep those businesses going and those workers receiving an income.
And it’s shut-up parliament until August so there can be no debate or alternative proposals put forward by other parties. What kind of smoking ruin of an economy will be left by August?
In particular, Morrison has point-blank rejected the idea embraced by several other economies, including the UK — which has a far worse fiscal position than ours — of an economy-wide wage subsidy. Why?
One of the weaknesses of the system that you’re advocating for is that it has to build an entirely new payment system for that to be achieved, which is never done quickly and is never done well. And that can put at great risk the sort of resources we’re trying to get to people. The best way to get help to people is through the existing payment channels, through the existing tax system arrangements. That was the lesson from the GFC. Of all the money that went out in the GFC – and I’m not making a partisan point here – the key lesson was you must use existing channels for getting money to people because that is the most effective way for that to occur. To dream up other schemes can be very dangerous.
Thus, Morrison won’t adopt the kind of package Boris Johnson had embraced because it will take too long to “build an entirely new payment system” and that he doesn’t want to do what Labor did during the financial crisis — not that he’s making a partisan point. But what Labor did during the financial crisis was “very dangerous”.
So, we’re back to partisan attacks on what Labor did during the financial crisis. But Morrison is talking complete nonsense about payments. Why is an “entirely new payment system” required? The government is already providing emergency funding to small and medium businesses through the tax system based on payroll.
A wage subsidy scheme would expand that, not require an entirely new system. As a number of experts have noted on Twitter, the existing tax system can be used to deliver it.
And the bizarre argument that it couldn’t be done quickly should be seen in the context of the four-week wait that businesses are going to have to endure to get payments under the government’s current plan, because they’ve based it on the BAS payments process — a wait that will be too long for many small businesses that have already gone to the wall because the government has forced them to shut.
There’s a broader point here: what’s the “danger” that Morrison is apparently so worried about? That cash will spray out into the economy? That an undeserving business will game the system?
Given the emergency nature of the crisis and the hundreds of thousands of people about to be sent to the (literal, courtesy of Stuart Robert) dole queues, this is the supreme case of allowing the perfect to be the enemy of the good (and it’s not as if the government of rorted programs and handouts to its donors has ever been too fussed about where taxpayer money went before).
What’s Morrison’s real objection? That it will cost too much? That it’s a Labor kind of idea, as he’s already wrongly tried to hint? That he’d rather people hit the safety net rather than prevent them from falling in the first place?
No matter what the real motivation, there’s a substantial risk the result will be a wrecking of huge numbers of firms that will never reappear when the crisis is over, widespread defaulting on business loans, unemployed residential mortgage holders struggling with mortgage repayments and the potential for systemic destabilisation that comes with that.
The possibility that we don’t recover when the virus threat fades, but instead we get stuck in a feedback loop of despair, fear and risk-aversion.
And, maybe worst of all, the lingering social damage that comes from throwing hundreds of thousands of people on the scrapheap.