Now is the time for dealing with the COVID recession, not reform wish-lists
by John Daley
Published in The Australian Financial Review, 29 June 2020
One should never waste a good crisis. So a lot of people are arguing that now is the perfect time to enact whatever was their favourite policy reform well before COVID-19 came along.
But the world has really changed, and policy priorities need to reflect the new reality.
Grattan Institute’s Recovery Book, published on Monday, lays out the huge agenda of issues that governments need to deal over the next six to 12 months if Australia is to recover from COVID-19.
Governments should stick to their knitting, or Australia’s economy and society could unravel.
Governments enacted a string of emergency measures to respond to the epidemic. Think JobKeeper, the JobSeeker supplement (which effectively doubled unemployment benefits), loan guarantees to small businesses, relief from state taxes and fees, suspension of the usual rules for residential tenancies, commercial tenancies and insolvency, and deferral of many loan and rent payments.
These emergency measures aimed to prevent an economic crash, and they succeeded. But they can’t stay forever, and governments have to figure out how to unwind everything without upsetting the fragile economy they have been preserving.
At the moment almost all the emergency measures are scheduled to roll off towards the end of September. The International Monetary Fund and many others have warned that jumping off this “fiscal cliff” may not end well.
So within the next three months governments have to figure out how to extend for a limited period – and probably refine – many of these measures.
Some emergency measures enacted to respond to COVID-19 should stay for the long term.
Governments have increased JobSeeker, improved childcare affordability, and made long-overdue changes to telehealth, out-of-hospital care, and the interaction between public and private health systems.
COVID-19 has forced governments to do things that should have happened a long time ago, and reverting to bad ways would be criminal waste. But they all need to be refined.
Governments then need to set up Australia to live in a world with COVID-19.
Our international quarantine arrangements will need redesign if we allow foreign students and skilled migrants back in. We need to devise forms of social distancing that stop COVID-19 from spreading and that we can live with for a long time.
Transport policy must be adapted to more people working from home, and people worried about using public transport when they do commute. With workplaces reopening in the next three months, governments will need to quickly rethink public transport protocols, commuter parking arrangements, congestion pricing, cycling infrastructure, and big projects conceived for a different world.
And, of course, our governments must respond to the biggest global economic downturn since at least World War II.
To avoid long-term unemployment and damage to the economy, the Reserve Bank can help with unconventional monetary policy. But governments will have to do most of the heavy lifting.
To get unemployment to 5 per cent or below by mid-2022, Grattan Institute estimates that they will need to spend $70 billion to $90 billion more, on top of the $160 billion they have announced already. About $30 billion of this should take the form of phasing out emergency measures including JobKeeper more slowly than currently planned, and another $21 billion over two years could come from permanently increasing JobSeeker, Rent Assistance, and childcare support.
But they will still need to plan for $20 billion or more in other stimulus, including investing in social housing and small infrastructure projects, and supporting industries that have been hit particularly hard, such as higher education, arts, and tourism.
That sort of stimulus package can’t be worked out in an afternoon, but it needs to be ready to start rolling out by around October this year.
This is a huge and urgent agenda. And for once, the urgent really is important.
Given the size of this agenda, if governments try to prosecute other major reforms over the next six months or more, they are likely to do them badly. In government, as in business, trying to do too much at once is usually a recipe for doing too little.
So, however much we might like to reform superannuation, capital gains taxes and stamp duties, or make hospitals more efficient, or reduce pharmaceutical and pathology prices, this is not going to happen – and it shouldn’t – for six months or more.
And if your wish list includes industrial relations reforms and lower company taxes, they probably shouldn’t be top of the agenda now either.
Such structural reforms have been on the table for a long time. They’re worth doing – just not right now. By contrast, failing to manage the wash-up of COVID-19 over the next six to 12 months could lead to an unpleasant economic shock, progressing to a depression lasting years.
Not dealing with the crisis would be the biggest waste of all.