Yesterday’s unveiling of another $20 billion in income support for the December 2020 and March 2021 quarters is sound policy.
But in the absence of a vaccine or a remarkable turnaround in which Australia achieves New Zealand-style elimination and can resume normal economic life within closed borders, the extensions push off into 2021 any kind of return to economic normality.
That is, a world in which the government is not central to economic growth and job creation.
The pandemic was initially accompanied by a delusion on the part of the government — and in key sections of the media and business — that the disruption would be a significant, but short-lived, blip.
Aided by the Reserve Bank setting monetary stimulus to maximum, the government would support business during a brief shutdown and then things would revert to normal. They would “snap back”; we’d emerge from “under the doona” to a “V-shaped recovery”.
The only real question was not how correct this assessment was, but whether the government had the courage and skills to use the crisis to push through much-needed neoliberal reforms: wage cuts, company tax reductions, an increase in the GST.
That delusion is still harboured in sections of the media, especially at The Australian Financial Review, but political necessity has imposed some reality on the Morrison government.
Volume of spending is truly colossal
This is no blip. The government will be the primary driver of job creation and job preservation at least until well into next year, 12 months after the pandemic first forced extreme responses from policymakers.
And the volume of government spending involved is truly colossal. Yesterday another $16 billion to extend, albeit in tapered form, a $70 billion program by a further two quarters. Another $4 billion to keep unemployment benefits at a level at least close to, if not above, the poverty line for another quarter, with the prime minister reluctantly flagging that it may be extended beyond December.
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Tomorrow the bill will be itemised, in the hundreds of billions of deficit spending, multiples of anything Labor ever racked up when it successfully kept the economy out of recession in 2009.
The hypocrisy accompanying this ocean of red ink is astonishing. How many words, column inches, furious editorials, scathing op-eds, breathless comment pieces were produced from 2009 to last year about debt and deficits — and Labor’s culpability?
The evils of deficit spending were the pole star of Australian political and economic journalism over the past decade, even as the Coalition resumed its mantle as the party of high taxation and high spending.
Now all that’s forgotten. The fiscal fire brigade that Tony Abbott boasted of being is spraying out money at a pressure more consistent with a flooded dam than a fire hose.
One senior journalist has even admitted that, having berated Labor for its spending to save the economy, he had reversed himself. Elsewhere there’s open debate about whether government debt even matters, that there are no limits to how much governments should spend except the capacity of the economy.
The budget deficit might go the way of the current account deficit — an object of incessant debate in the 1980s, held to be the true marker of the (failed) economic policies of the Hawke-Keating governments, but conveniently forgotten about, waved away as a matter for “consenting adults” after 1996.
Wayne Swan, who had to eat a toasted, garnished, super-sized shit sandwich over his abandoned return to surplus when treasurer, is entitled to wonder exactly when the rules changed so dramatically for holding governments to account on fiscal policy.
But changed they have. Fiscal policy is now the dominant element of economic policy.
We’re all Keynesians now
We’re all Keynesians now, yet again, only this time the rivals have been driven from the field: monetary policy is at maximum and can go no further except into realms where, at least for the likes of the RBA’s Phil Lowe, there be dragons.
Business investment, already flaccid at best before the pandemic, will take a significant recovery and a major boost in consumer confidence to lift off.
Even the offer of a part-guarantee of loans can’t get small businesses spending. And households face wage stagnation and real wage cuts far into the 2020s.
As always in Australia, the story in this that won’t be covered by the media — because they’re a fundamental part of the story — is about power. The centrality of fiscal policy gives a powerful government even more power, and experience has repeatedly shown us that this government uses power to reward its friends and punish its enemies.
It’s already used that power in the pandemic to attack two key enemies: the industry superannuation sector via its early access scheme, and its refusal to provide assistance to the higher education sector crippled by its border closures.
In contrast, its major donors in the gas industry will be key beneficiaries from a “recovery” plan they have a hand in shaping.
Many on the left are pleased that the pandemic has engineered an outcome they have long wanted: the restoration of government to a crucial role in the economy. What they never stopped to consider was what a conservative government might do with that role.
What steps would you like to see the government take to aid in the coronavirus recovery? Let us know your thoughts by writing to [email protected]. Please include your full name to be considered for publication in Crikey’s Your Say section.