When the world falls apart some things stay in place

Tuesday is supposed to be budget day, Josh Frydenberg’s annual set piece of taxing and spending. Last year the extravaganza was brought forward to April, effectively kicking off Scott Morrison’s sprint to an election the following month. It was the Treasurer’s first budget speech, with the opening couplet: “The budget is back in the black and Australia is back on track.” But drought, a US-China trade war, skittish markets, an investment strike and wary consumers kept growth in the year to December to an insipid 2.2 per cent. Still, as bushfires raged and the Prime Minister vacationed in Hawaii, Mr Frydenberg retained an optimistic view. “Australians can be confident about their economic future,” he said at the mid-year economic and fiscal outlook in mid-December. “With the first current account surplus in 40 years, welfare dependency at its lowest level in 30 years, the biggest tax cuts in 20 years and the first balanced budget in 11 years.” How the world changed.

A month earlier, the first reported patient infected with what was later named COVID-19 was found in Hubei. That was more than nine weeks before Wuhan, a city of 11 million people, was put into lockdown on January 23. The next day almost all of Hubei province, with its population of almost 60 million, was cut off from China and the rest of the world. A week later, Mr Morrison announced a travel ban for foreigners travelling from China. We are still in social shutdown, our commerce in suspended animation, with gross domestic product expected to contract by a ruinous 10 per cent. Instead of fiscal maximus, on Tuesday the Treasurer is delivering an economic statement to parliament, no couplets but a sea of red ink. He is looking into a deficit abyss, with private forecasters tipping the cash shortfall to be $143bn this year and unemployment pushing past 10 per cent. In response, the government is spreading its welfare footprint far and wide: a doubling of the JobSeeker allowance, softer income-support means testing, the $1500 JobKeeper wage subsidy for battered businesses, and free childcare.

Mr Morrison vowed a “snapback” to normal from emergency measures, a fiscal pivot more easily said than done. Canberra’s money pit is finite, he maintains. Yet even on the most optimistic official forecasts, with restrictions eased sooner rather than later, the jobless rate won’t be back to its pre-crisis 5 per cent until mid-2022. Private economists say it could take two years beyond that to get back to this benchmark. The experience from the recessions of the early 1980s and 90s shows many workers will remain unemployed for years; some may be clocking off for good. Given the way the economy has been remade in the past three decades, rather than mature blue-collar men facing the blowtorch, it’s likely the displaced will be women and young people working in services. Labour-intensive industries such as retail and hospitality will not only be in distress, they also will be transformed in the post-COVID-19 world.

The Morrison government insists it wants a business-led, high-growth economy with rising living standards from a surge in productivity. The Prime Minister hinted on Monday that JobKeeper, which is meant to allow the economy to “hit the ground moving”, could be adjusted in the recovery phase. The government also is looking to harvest the best ideas from experts pushing for supply-side fixes. The broad shape of reform is well-known: a lower company tax rate, smarter regulation and more flexible workplaces. But the political will may be ephemeral. The Treasurer’s first budget did not set the reform crowd alight, this newspaper included. But it did have measures that could be deployed as a growth starter kit. Think tax breaks for investment, better skills training and capital works.

The seeds for more fundamental change, however, were sprinkled through Mr Frydenberg’s budget speech as he championed core values: aspiration, personal responsibility and choice, rewarding effort, risk-taking, thrift and an adequate safety net based on mutual obligation. To that you can add well-regulated markets and openness to the world as Coalition policy bedrock of the Liberal and National mainstream. We hope such values inform a growth strategy out of the coronavirus mire. Mr Frydenberg must also look to change the defensive, cautious psychology that has been necessary to flatten the infection curve. We’ll need a more positive, expansive mindset to get the economy’s motor running, to restore consumer and business confidence, to attract foreign capital and international students, and to entice local companies to innovate, invest, expand and hire workers.

It’s likely we’ll be ahead of the global pack in recovery, perhaps swimming against a protectionist tide. The US maelstrom hurts investor confidence across the globe. So we need to go hard if not go it alone. By all means let’s not hinder people who want to take a risk with their own money and make things here. But tariffs and subsidies do not amount to a sustainable business model for Australian manufacturing. Let’s be sensible and remember “strategic” is likely to become the last refuge of the protectionist scoundrel or first call for high-plains grifters spruiking regional development or decentralisation. We already pay over the odds for military kit such as submarines, as important as those elements are to our security. But taxpayers will be saddled with debt for years, thanks to a cumulative run of budget deficits over four years expected to total $360bn. That’s why we need a fresh game plan that works for us, based on our rich endowments, world-beating advantages and longstanding values.