Scott Morrison recently committed to a growth target of 1% above trend growth through to 2025 — Or around 3.75-4% a year, year in and year out.
As Crikey noted at the time, it’s a bold move for an outfit that hasn’t come within cooee of the sort of growth Wayne Swan and Julia Gillard presided over (or labour productivity, or wages growth, or investment… anyway).
The government has no plan for how to achieve this growth, beyond saying it is “harvesting” ideas and having some talkfests around industrial relations.
Its thinking seems to be that if it sprinkles enough magic dust of Economic Reform on the economy, it will rack up an historic run of growth. Some of its members, and various organs of the traditional media, specifically think a little sprinkle from the Neoliberalism Pixie will do the trick.
Formally, it is committed to ditching JobKeeper and the extra Newstart payment come September, creating a “fiscal cliff” that could cause another economic contraction in the last quarter of the year. If households start saving their money now in anticipation of losing jobs/payments later in the year, the current contraction will be deepened further.
Occasionally, hints emerge that some elements of JobKeeper will be kept going, and Newstart won’t revert to its below-poverty-line level, but the government prefers to keep any clear statements of intent until after the Eden-Monaro byelection, in case they frighten South Coast and Queanbeyan voters who’ve already been mugged by bushfires, inadequate recovery support and a pandemic.
With the increasing likelihood that countries, including Australia, will make a patchwork recovery from pandemic as regions and hotspots flare up, requiring returns to lockdown or the slowdown of opening up, the whole idea of some consistent economic recovery from pandemic looks increasingly unlikely.
Whether it’s the now-abandoned V-shaped recovery, or a U, or W, or tilted L, or whichever letter takes your fancy, the right-hand side will be more likely to represent an average of significantly different outcomes in different regions.
Just what it will cost to even approach Morrison’s self-nominated growth target is made clear by the Grattan Institute’s new work on economic recovery.
Grattan actually advises against some of the neoliberal pixie dust, noting that there is little evidence industrial relations reform will deliver much in the way of substantial economic benefit — a view that is about the closest thing you can get to blasphemy these days, but which has been borne out by both Grattan’s own work and that of the Productivity Commission.
On the other hand, the report does back tax reform, supporting a swap of land tax and stamp duty, maintains the institute’s opposition to a compulsory superannuation increase and urges the Reserve Bank to consider negative interest rates to try to push inflation and inflationary expectations up again.
Above all, however, getting the economy growing again to the point where it returns unemployment to its pre-COVID level — or below it, if things go well — will need substantial fiscal support: around $70-90 billion over the next two financial years.
That would be best delivered by extending JobKeeper for a further three months for business that need it, extending it to casuals and temporary migrants, and cutting it so that part-timers are no longer receiving more than their original wage. That should be coupled with a permanent increase in the base Newstart rate, a flatter tapering of the child care subsidy and an increase in the rate for low-income earners, a boost in rent assistance.
What the report recommends against spending money on is just as interesting. Direct cash payments, the report says, have been proven to be better forms of stimulus than tax cuts (which contradicts the neoliberal argument against fiscal stimulus made during the financial crisis by the likes of Malcolm Turnbull); direct cash payments to retirees are also less effective stimulus than payments to younger people because they are saved, not spent.
And while the rest of us worship at the altar of the great god Infrastructure, Grattan is more sceptical, saying infrastructure investment is too slow as a form of stimulus, there are too many projects on foot that have dubious benefits as it is, and if there’s to be any additional spending it should go toward social housing and small, local council-level projects or maintenance that are ready to go, including school maintenance.
Oh, and “funding should be allocated based on transparent criteria, rather than ministerial discretion.”
No matter how the money is spent, however, it’s clear that there’s no cheap path to recovery, and no neoliberal shortcuts to high growth.