IMF has wrong Covid prescription

With the vaccine rollout under way, business leaders and governments are calculating how best to recover from the fiscal shock and increased debt load delivered by the pandemic. Australia has been fortunate to date, with the bounce-back from the COVID-inspired recession quicker and more substantial than forecast. Government can afford to be pleasantly surprised at the pace of the recovery and the growth in employment. Nonetheless, the vaccine program is still building momentum and state leaders have shown themselves prepared to impose snap lockdowns. With winter approaching there is no room for complacency. Despite a better-than-expected recovery in activity, Australia has been left with a significantly increased debt burden that must be addressed before global interest rates return to more normal levels.

Businesses are laying out the precarious nature of their position in arguments regarding the minimum wage decision due in June. As Ewin Hannan reports on Tuesday, the National Farmers Federation has called for a freeze in minimum and award wages for low-paid workers until conditions improve. In a submission to the Fair Work Commission’s annual wage review, the NFF says farms are facing adverse conditions that threaten business sustainability and productivity. Business NSW has urged the commission to award a zero increase this year and the Morrison government has warned increasing the minimum wage could be a “constraint to small business recovery” and cost jobs. Unions are urging the commission to back a 3.5 per cent minimum wage increase, saying a failure to boost the pay packets of workers “threatens the entire recovery”.

Arguments over the minimum wage reflect sharp divisions over how governments around the world should respond to the increased debt and lower economic activity because of the pandemic. One way is for governments to work hard to build the economy by improving productivity and streamlining regulation to remove blocks to employment and enterprise. An alternative is slug taxpayers with additional imposts and justify the hit because of the exceptional nature of the pandemic and the support it has created for greater government intervention. Not surprisingly, this route is favoured by many on the left of politics and in the public sector, despite showing itself to be electorally unsuccessful in recent elections in Britain and Australia. The International Monetary Fund is advocating extended job subsidies and a new wave of government imposts, including increased property taxes, death duties and special-purpose levies for high-income earners. The IMF also has floated the idea of a super-profits tax for companies that are able to earn more than authorities might deem appropriate.

The IMF says the pandemic has focused public attention on governments and their ability to respond to the crisis. It says meeting the rising demand for basic public services and more inclusive policies is crucial for policymakers to strengthen public trust and support social cohesion. The federal government must be wary of these proscriptions and instead favour policies that enhance productivity and grow the economy. The World Economic Outlook report, to be released on Tuesday, is expected to illustrate how well Australia has fared compared with other parts of the world. As Josh Frydenberg prepares the federal budget due to be delivered on May 11, the focus should be on sticking with reforms to lessen the tax burden through changes to personal taxation rates that have already been legislated and progressively reducing the level of government intervention made necessary by the pandemic.