Great in a crisis, Australia cannot lose it in recovery

As the Morrison government does whatever it takes to keep oxygen flowing to the economy’s failing organs, the door is ajar to every red-blooded rent-seeker and schemer in the land. In three escalating emergency moves, it has promised to pump $214bn into the economy to support businesses and top up family incomes. It’s likely Scott Morrison and Josh Frydenberg will do more on the fiscal front as companies hibernate over winter; a budget in October seems light years away from this vantage point. In any case, it was good to see the Prime Minister and Treasurer hold firm by denying Virgin Australia, now in voluntary administration, a taxpayer bailout. As Mr Frydenberg said, the 90 per cent foreign-owned carrier’s major shareholders have deep pockets, if not gold vaults. With a number of parties interested, a market-led solution offers the airline the best prospect of survival.

Imagine the conga line for deals if the government had made an exception for Virgin Australia. You can grift your way out of bother for a little while, but it’s not a sustainable model to build prosperity for companies or workers. Nor is Big Canberra, as it saunters into novel areas, such as private hospitals, free childcare, brokering rents and nationalising half the nation’s payroll. We take Mr Morrison at his word when he says hard times require mammoth, targeted and temporary responses. Sure, but it won’t be easy to shift out of crisis handout mode, to snap back to tightly means-tested, mutual obligation welfare. Those receiving $1500 a fortnight via the six-month JobKeeper package won’t easily settle for the $1100 JobSeeker payment (which has been doubled) when that day comes. Given the alliance of business, community and union groups pushing for an increase in unemployment benefits before the coronavirus, and its imminent double-digit unemployment rate, a hefty increase in the welfare bill will be baked into the federal budget.

Myriad forces unleashed by COVID-19 are reshaping our nation, shifting the political calculus, watering down ideology, emboldening policymakers and revamping household budgets. Reserve Bank governor Philip Lowe, who is remaking monetary policy, observed on Tuesday that many old rules would no longer apply when the economy comes off the ventilator, due to structural change. Pervading the recovery, expected by the end of this year, will be the shadow of uncertainty that people feel about the future. “We are all learning to work, shop and travel differently,” Dr Lowe noted. “Some of these changes will probably stay with us, requiring a rethinking of business models.” The best way of dealing with these reverberations is to reinvigorate the country’s growth and productivity agenda, which had been put on hold.

As we observed on Wednesday, the RBA governor has been prodding the political class on reforms to make us “a great place for businesses to expand, invest, innovate and hire people”. He set out a broad framework — on tax, infrastructure, education and training, regulation and industrial relations — that sensible experts and legislators have outlined over the past decade. On any of these, both major parties have not even scratched the surface, either in office or as part of election platforms. The thinking has been done: from Ken Henry’s almost nose-to-tail 2010 tax review (he was prevented by Labor from considering the GST) to the Productivity Commission’s landmark 2017 Shifting the Dial strategy ordered up by Mr Morrison as treasurer. Other notable policy contributions have come from the Business Council of Australia on tax, investment and productivity and NSW Treasurer Dominic Perrottet on reforming federal financial relations through a grand bargain to run social services on a fixed share of income tax.

Many see a spirit of co-operation between governments in responding to COVID-19 via the national cabinet. But the crisis will pass; all parties will revert to playing their customary roles in cost shifting and blame gaming. So the time to strike on reform is now. If Canberra is too “comatose” or “sclerotic”, as Mr Perrottet has described the dynamic, then the states should get on with their own changes. Who’s to stop them? Daniel Andrews has banked a wad of political capital. Will the Victorian Premier use it to build his population’s productive capacity, or fritter it away on niche social progressivism? The NSW Treasurer should abolish stamp duties on property transfers and introduce a superior land tax that makes it easier for people to move to where jobs are located or occupy housing best suited to their stage of life.

The crisis is a golden opportunity for state treasurers and finance ministers — not for triage-era announceables, spending boondoggles or a lazy policy holiday. But the opposite: to remove impediments to more investment and employment. Of course, some states are carrying huge debts and an aversion to privatisation that limit their options, especially Queensland. Mr Frydenberg, too, must make the running on red tape and tax reform. Ad hoc investment allowances might make a difference at the margin. But cutting the company tax rate to 25 per cent for all businesses would supercharge capital spending and make our enterprises more globally competitive in the recovery phase. Mr Morrison wants some fresh ideas from business, yet most of the very good ones have been staring policymakers in the face for years. Team Australia head cheerleader Dr Lowe reminds us that all those factors that have made us such a successful and prosperous country will still be there when the coronavirus crisis has passed. It’s how we use those vast endowments that counts.