It wasn’t so much a tale of two economies, as a tale of two emphases.
In Sydney, the central bank governor was geeing up the government to limit the severity of the “costly scars” associated with the economic downturn triggered by Covid-19 by making direct transfers to business and households, and borrowing for infrastructure.
Philip Lowe made an obvious point: debt relative to the size of the economy was much lower than in many other countries. Also, happy times: a government inclined to borrow to do good, to help people get through a health crisis, and boost the productive capacity of the economy, could do so at the lowest cost since federation.
But in Canberra, the atmospherics were different. We were looking at a government bracing for its own economic statement on Thursday. This statement will not herald the triumph of small government, it will contain some eye-popping debt and deficit numbers – the accumulated costs of Covid-19.
The centre-right “debt and deficit disaster/budget emergency” faction within the government and the commentariat will be clutching their pearls once these new Treasury forecasts are produced. So the prime minister and the treasurer were intent on sending a message that income support was on the way out.
Slowly and carefully of course. The point about Tuesday was Scott Morrison and Josh Frydenberg weren’t about to drive the country off the fiscal cliff. Nothing would change until after the end of September. But people needed to be weaned off the income support provided for the crisis because the programs were, as the prime minister put it, “burning taxpayers cash” at an unsustainable rate.
Taking my lead from the RBA governor, let me make a point as obvious as Philip Lowe’s: this weaning carries risks. Victoria, reporting new infections in the hundreds daily, is in the middle of a lockdown. New South Wales has contained its second wave outbreak so far, but it is also reporting higher numbers of cases.
There are already close to one million Australians out of work, and the unemployment rate will get worse before it gets better. Significant job creation requires confidence that the pandemic is in hand, and governments in the current climate can’t provide any guarantees on that score beyond deploying the public health strategies that worked in round one.
There is also another point to make about the economic shock associated with this pandemic – a point that doesn’t get made often enough. Governments have a special obligation to citizens in this crisis, because it is governments that have made the decision to shut swathes of the economy down to try and reduce infection rates.
Now don’t misunderstand me – I think that’s a good decision, to try and save lives. I think that’s a moral decision, and we are fortunate to live in a country where the nine governments of the federation have made a moral call rather than letting the virus rip.
We are lucky, and as a citizen, I’m grateful. The only point to make is at the end of the day, governments can’t have their cake and eat it too: they can’t shut down industries and then waggle their finger, however politely, at people for burning through taxpayer cash. Governments in this country have resolved to work collectively, and they carry special responsibilities for their citizens.
The policy response to Covid-19 is a collective decision of nine governments, not an event that just fell out of the sky. People can’t get jobs because social distancing restrictions have felled whole industries, and economic recovery, in the absence of better treatments, or a vaccine, is going to be fitful. It’s going to be stop-start. Some people who lose their jobs now will never work again, or they will have a significant spell out of the workforce retraining for an industry that hasn’t been felled.
Long-term unemployment is going to be with us as a consequence of these events. Nobody is talking about a V-shaped recovery anymore. But very notable in Tuesday’s rebalancing announcement was the reluctance to commit to one obvious salve: raising the rate of the old Newstart payment in perpetuity.
The government is absolutely correct to weigh up whether taxpayer-funded income support creates the right incentives for people to participate in a recovering labour market, and it is right to ensure that the support is tailored to need, and targeted to people who need it.
But Lowe is also right in the way he is framing this crisis, and proposing the optimal institutional response. We should be clear about the national imperative: now is the time to do good, to get people to the other side of the crisis, to invest in the productive capacity of people and infrastructure, so Australia can emerge in a position of strength once we can finally bid this pandemic farewell.
