This must be the recession that changes us for good

Recession? Australia, you’re standing in it. Josh Frydenberg decided not to wait until September for the next national accounts, and official confirmation of a second quarter of negative growth in gross domestic product, before calling it. The last treasurer to utter the R word, and mean it, was Paul Keating in 1990. No point in looking forlornly in the rearview mirror to the March quarter, when the Black Summer bushfires, natural disasters and first stage of shutdown shaved 0.3 per cent off GDP. Travel bans, social distancing and venue closures took a toll, as well as the first drop in consumer spending since the global financial crisis. But there’s much worse to come, possibly a 10 per cent contraction in output this quarter, before a recovery later in the year.

The Treasurer maintains $259bn, or 13.3 per cent of GDP, in federal aid will support workers, households and businesses. That includes the $70bn JobKeeper subsidy, a doubling of the unemployment benefit, loan relief, free childcare and industry assistance. Only 100 days ago, Treasury had expected a 20 per cent slump in June-quarter GDP. “This was the economists’ version of Armageddon,” he said. There’s more stimulus to come, including a package to help the construction sector, but the official family of Treasury and Reserve Bank advisers are now more hopeful of a stronger revival. There are still areas of devastation, particularly in tourism, education services and construction, which was weak before the pandemic.

The building industry is a vital generator of activity, a vast, energetic ecosystem of multiple contractors, “subbies” and tradies, chomping on bulk materials and churning money through car dealerships, hardware stores and lunch spots. It makes sense to give the sector a dose of sugar on this multiplier effect alone. But it must not become a high-cost grift, like Labor’s home-insulation debacle and school halls extravaganza. Value for taxpayers must be paramount. What point can there be in subsidising granite bench tops and frameless shower screens for people who have the money or desire to capitalise their homes? Far better to add to the housing stock in areas of need, perhaps reducing entry costs for first-home buyers or essential workers. The wrong stimulus would merely bid up the price of existing property, inflate the cost of labour and materials, and make some projects unviable.

Canberra needs to tread carefully. Every dollar of assistance is borrowed, each spending decision involves an opportunity cost. The lobbyists are out in numbers, rubbing their hands — and not only because it’s winter. The Morrison government was right to rebuff pleas for a bailout of the ailing Virgin Australia; a deal would have set a terrible precedent. Besides, the carrier’s shareholders are not short of cash. The crisis is asking companies difficult questions. There’s an imperative to review operations, restructure, and go for growth in a post-crisis marketplace. Asking for a handout should be a last resort, not first port of call because the political class is such an easy touch. Assistance — whether for the arts or strategic manufacturing — must not become permanent struts. The aim is to ease a crisis, not induce dependence.

The Treasurer has pushed back an economic statement from this month to next, after a thorough review of the labour market and income support. The $60bn “surprise” in JobKeeper’s cost is a burden and opportunity. There are calls to extend it to those excluded. There will also be pressure for a more generous “normal” when JobSeeker snaps back in September. The government must not lose sight of the sound principles behind temporary and targeted assistance as the economy bounces back, nor of mutual obligation or adequacy, the cornerstones of the social safety net. We will still have high unemployment, due to cyclical and structural factors. That’s why making it easier for companies to employ people has to guide decisions of the working groups on industrial relations that have just started. Bargaining is hobbled by the “better off overall” test. Awards are overly complex, and there are too many. Parliament needs to change the definition of “casual” worker after the recent Federal Court shock decision.

The new workplace compact, if one emerges at all, will be stress-tested by financial officials to make sure changes promote flexibility, productivity and job creation. But businesses will have to do the heavy lifting in recovery, so it’s vital that federal and state governments ease the burdens of regulation and taxation on them. Canberra’s heavy fiscal footprint during an emergency must not become the norm. It’s true our success in flattening the curve of new COVID-19 infections means social restrictions will be lifted sooner than originally thought, notwithstanding the tedious caution of some premiers. As well, we are likely to suffer less economic damage than some of our rich-country peers. Yet the national accounts also tell us that we were, at best, sub-par before the pandemic; we had become lazy and reform-shy. The nation’s dismal economic report card — must be more dynamic, work safer and smarter, use better tools, innovate, hire more people — should be a spur to ditch the bad old ways. This must be the crisis that changes Australia for good.