Coronavirus: Take as directed for fast, effective relief

Economists are having to get used to playing a different role in the present environment. Accustomed to pontificating about the merits and drawbacks of particular policy interventions in the context of relatively normal economic conditions, this approach is no longer viable or useful.

Having said this, economists still can make some useful contributions by estimating the size of the economic challenges, assessing different policy options and working out how to deal with the post-virus situation, including paying off the accumulated debt. It’s not necessary to ditch the entire playbook.

The three key criteria that economists typically apply to the assessment of policy are efficiency, equity and simplicity. In this particular instance, we also need to add speed, both in terms of formulation and delivery. Delivery is best facilitated using existing mechanisms rather than attempting to create new ones.

Let’s also be clear here; we are not taking about fiscal stimulus measures. This is all about fiscal relief, even fiscal rescue. It is absolutely necessary because public health-motivated restrictions on the production of goods and ser­vices are imposing extreme economic costs, with the impact of the measures unevenly distributed across individuals and industries.

The production of goods and services underpins living standards. Take away a lot of that production and living standards fall quickly, and in some instances catastrophically.

The role of government policy therefore is to attempt to prop up living standards, to some degree at least. In this way there can be some averaging across time of the economic impact of COVID-19 with the government amassing large slabs of additional debt to achieve this outcome. It’s not too early to consider how this additional government debt will be managed given that it’s likely to be at least triple in size relative to the pre-virus situation. And let’s face it; a tripling of debt could prove to be an underestimate.

Consider the JobKeeper allowance. This was announced after it was clear that the JobSeeker allowance — an enhanced version of Newstart — was unlikely to provide a sufficient safety net for the many workers who have or will lose their jobs or have been or will be stood down. It has the advantage of retaining some connection between employer and worker.

Estimated to cost around $130bn and providing a flat-rate payment of $1500 a fortnight to up to six million workers (just under half the previously employed workforce), JobKeeper was obviously a scheme devised on the run. The money is to be paid via employers who can demonstrate substantial business damage.

All permanent full-time and part-time workers as well as casual employees who have been with the employer for at least 12 months are eligible for the payment. Note the JobKeeper allowance does not require the payment of the 9.5 per cent superannuation guarantee charge. Employers are free to top up the allowance.

The decision to make the payment a flat-rate amount, thereby favouring the lowest-paid, particularly some casuals, meets an equity objective much better than a percentage-based wage replacement scheme. It also limits fiscal costs, which are still substantial. The British government may live to regret its decision to adopt a wage replacement scheme.

Now no one is suggesting the scheme is perfect, but to underline the inflexibility of our industrial relations system, ACTU secretary Sally McManus and opposition industrial relations spokesman Tony Burke are issuing various protests. Their basic objection is to the notion that the Fair Work Act should be amended, albeit for a six-month period. Their alternative is to amend 118 modern awards — three awards have been amended so far — as well as to seek variations to tens of thousands of enterprise agreements.

Thinking about the criteria of policy formation in these unique times, speed and simplicity must rule out the McManus-Burke route.

Moreover, the preservation of workers’ paid leave entitlements seems like a complete sideshow at this stage. It is perfectly reasonable for employers to insist that their existing workers use up all their leave. My guess is that there will be very few objections to this happening in any case.

The last thing we want to happen is for employers to feel the need to seek costly legal advice as to how their workforce can be managed in the context of the JobKeeper scheme.

As to the inclusion of casual workers with less than 12 months’ job tenure, these workers will be able to access income support through the JobSeeker allowance. McManus’s notion that any short-term casual worker who had an expectation of ongoing employment should be paid the JobKeeper allowance is simply unwork­able. The line has to be drawn somewhere.

That the ACTU is still seeking an increase of 4 per cent in the national minimum wage — and all other award rates — from July 1 tells us how removed from economic reality is the union leadership. The case for freezing the national minimum wage this year is absolutely overwhelming, even if the economic restrictions have begun to be lifted at that point.

When it comes to the JobSeeker allowance — which, it should be noted, is not means-tested according to assets — there is a real danger that some people will see this as a chance not to work again while being paid a reasonable sum.

Obviously, no jobseeking activity can be expected at this point. But the exit point for this intervention will be tricky down the track, particularly in light of the previous campaign to raise the amount of the Newstart Allowance. Some phased payment reductions may be the only option.

For those who opposed the past determination of the Coalition government to repair the fiscal position and to begin to pay down the debt — something that was about to happen — they would be best advised to hide at this point. Australia is extremely well placed to deal with much higher government debt because of its starting position.

Last financial year, the net debt of the Australian general government sector was 19.2 per cent of gross domestic product, with the net annual interest payment of just more than $15bn. Australian government securities on issue amounted to about 27.8 per cent of GDP or $541bn.

Believe me, most developed economies would be extremely envious of these sorts of figures — most have started with much higher government debt relative to their GDPs.

The point is that Australia can afford to amass more debt — and University of NSW economics professor Richard Holden has suggested that it may well be necessary to do even more than currently planned — and still have an acceptable exit path. The continuing emphasis placed by Scott Morrison on the temporary nature of recent policy initiatives is also useful.

To be sure, higher taxes in the future will be necessary. But we have started from a good place to manage what is an extraordinarily difficult problem.