In Covid fight, we can also build new growth engines

Scott Morrison is kicking in an extra $15.6bn on JobKeeper because of the king-hit to workers and employers during Victoria’s severe lockdown measures. The wage subsidy scheme got a $16.6bn top-up last month. So did the unemployed and others on welfare, who will receive the COVID-19 supplement until the end of the year at a cost of $3.8bn. A dozen billion here, a couple dozen billion there, and pretty soon you’re talking real money! In fact, direct and balance-sheet support from Canberra is now worth $300bn. Eyes tend to glaze over this mountain of borrowed money, akin to the fatigue over casualty statistics during World Wars. But that pile of taxpayer money pledged is equivalent to 60 per cent of all federal outlays, or 90c of every retail dollar spent in a year by 25 million Australians. By contrast, states and territories have invested $40bn.

In fighting the twin medical and economic crises there is a tension between the Morrison government and states relating to responsibilities and incentives. It is up to the eight sub-national jurisdictions to make and enforce social restrictions to deal with COVID-19, but Canberra is left to fix the economic fallout and pick up the tab. The kids have got mum and dad’s credit cards and are on a spree. The bill gets larger because premiers and chief ministers only indirectly take a hit to their budgets; their propensity to impose restrictions is greater than their tendency to resist federal support. That is the entrenched dynamic in our federation, a weakness and strength. Yet until the virus is suppressed, there is no hope of reopening the economy; stop-start-stop-start may work in exercise classes but it is a confidence killer for spending and investment.

At this stage, the Prime Minister and Josh Frydenberg have no choice but to provide a “lifeline”, as they call it, to companies and workers. Victoria has declared a state of disaster, with the gloom descending over one-quarter of the national economy as clamps on mobility and industry shutdowns try to halt the spread of the coronavirus. The restrictions are taking an immediate toll on Melbourne’s CBD, big building sites, abattoirs, warehouses, factories and sundry other workplaces that make up the vast web of relationships and transactions that generate incomes and create our wealth. Around 250,000 workers will be stood down from jobs. The six-week stage-four lockdown in Melbourne and stage-three restrictions in regional areas will knock as much as $3bn a week off gross domestic product.

Economists are expecting the September quarter will become the third straight of negative GDP growth. The effective unemployment rate — including those on JobKeeper working zero hours or dropping out of the job hunt — is likely to peak above 13 per cent. Reserve Bank assistant governor Luci Ellis said on Friday the pandemic had been “the most profound shock to the economy and society in many decades”. She noted the Australian economy would “take several years” to return to its pre-pandemic path. More than one-third of employers surveyed regularly by the RBA said they would impose a wage freeze in the coming year. The country will split into two nations: many households will experience significant cuts to income while others will be unaffected or will prosper. There is a great recalibration under way between groups of workers, firms and industries.

Like it or not, Australia is being remade by the pandemic. We can be passive victims or we can seek to control our destiny. Again, planning is extremely difficult amid contagion: families can’t be certain of keeping up mortgage payments; graduates can’t yet see the starting line of a career; capital expansion is on ice for companies; the Treasurer’s budget parameters are as robust as outlines on foggy glass. But we simply can’t wait for something to come along, say, a vaccine, miracle event or a wacky “buy now, pay never” paradigm of monetary and fiscal management. Mr Morrison insists he is the man with the plan to achieve high rates of GDP growth. Certainly, he has moved on a number of fronts to elicit fresh ideas and end old battles; he now knows there will be no “snapback” and that we can’t muddle through with a pre-pandemic business-as-usual setting.

The Prime Minister is pushing ahead with a skills agenda, a fees shock to change universities and student preferences, a workplace relations sit-down between employers and unions, a rebalancing in the energy sector, new measures to put manufacturing on a solid footing, and is seeking ways to reduce red and green tape to unlock major projects. Mr Morrison styles himself as non-ideological, a practical man with a nose for practical solutions. There is now a degree of busywork on the supply side of the economy, but much of it inevitably runs into two huge impediments: the states and federal parliament. Maybe the best he can hope for is to buy off reform, as he is doing on vocational education and training. Perhaps the ambitious NSW proposal of a “grand bargain” on taxes could underpin a new era of federal financial relations. A decade of policy inertia and dysfunction in Canberra does not bode well for a fresh economic game plan.

Nevertheless, the time to act is now, whether the virus is suppressed or not. Metaphors of war have been launched with abandon in this pandemic and community elders will demur to how apposite it is. But the human, financial, psychological and spiritual damage from COVID-19 is real. Mr Morrison must deploy a powerful body to oversee national reconstruction, the way John Curtin and Ben Chifley did when confronted with World War II, which ended in September 1945. Yet the Labor leaders established the department of post-war reconstruction in 1942, with HC “Nugget” Coombs heading its planning staff. It may have been the Keynesian era of the economist as hero, with different problems and means, but our challenges are no less manifest. This time we must empower businesses to expand, invest, innovate and hire people, as RBA governor Philip Lowe often puts it. There is no time to waste. Mr Morrison and Mr Frydenberg must engage our best minds to fashion a new, daring economic model — to reach our potential, pay our way and prosper.