Coronavirus has left Australia in better shape than most
Shrinking the deficit has put Australia in a better position than many other nations to ride out the economic downturn.
In one of his final poems before dying at 59, Australian poet James McAuley wrote: “Winter will grow dark and cold / Before the wattle turns to gold.
McAuley (born 1917), a Christian, apparently had in mind eternal life. But he well understood his immediate future on this earth, which was dark indeed.
Treasury secretary Steven Kennedy acknowledged on Thursday that Australia was already in recession, one that had come about so suddenly as to be unique. In Australian history, no government has shut down large sections of the private sector, with or without a pandemic. The same goes for other Western nations.
The economic consequences of the medical response to COVID-19 are new territory. So much so that we do not know whether a depression will eventuate. However, we do know that Australia entered the year with a comparative advantage compared with many other nations.
As Josh Frydenberg pointed out in his well-written and clear ministerial statement on May 12, the Australian economy was in a strong position — when compared with similar nations — at the beginning of the year.
Growth had risen from 1.8 per cent to 2.2 per cent in the December quarter. Moreover, the International Monetary Fund was forecasting the Australian economy was likely to grow at a faster rate than that of the US, Britain, Japan, France and Germany in both this and the next calendar year. And the unemployment rate was reasonable at 5.1 per cent.
The Coalition governments after September 2013 — led by Tony Abbott, Malcolm Turnbull and Scott Morrison with Joe Hockey, Morrison and Frydenberg as treasurers — worked to reduce the budget deficit of more than $48bn to a balance or near surplus. A constant figure in the budget reform process was Finance Minister Mathias Cormann. The ongoing deficit reduction was accompanied by the creation of some 1.5 million jobs.
Sure, it was not an economic utopia early this year. But the economy was in relatively good shape, contrary to the claims today of some on the green left, including journalists. In short, Australia was well placed to experience an unexpected recession.
It was much the same with novel coronavirus. Like New Zealand, Australia benefits from being an island, which makes border control relatively easy. Australia called COVID-19 a pandemic before this was done by the World Health Organisation. Moreover, early in the pandemic Australia closed its border with China, the centrepoint of COVID-19. This was done contrary to the wishes of the WHO.
The creation in March of what the Prime Minister called the national cabinet — consisting of federal, state and territory leaders — was an important initiative. As it turned out, it made possible a less dramatic shutdown than that advocated by some state and territory leaders and put into practice by Jacinda Ardern’s Labour government in New Zealand.
The states and territories are primarily responsible for health, education and law enforcement. But the Morrison government managed to bring about a “black book” approach to the pandemic. In other words, in various stages certain industries were instructed to close. Those not on the restricted list could remain open. So agriculture, construction (of various kinds), mining and transport, for the most part, remained in operation, as did early childhood education.
The left is in love in Ardern who, without question, is a popular leader. However, despite a more comprehensive lockdown in New Zealand than Australia, on a per capita basis the two nations have similar rates of COVID-19 infections and recorded deaths.
Unlike some green-left politicians and commentators, Frydenberg well understands that the task is to open up the economy as soon as this is possible, then to focus on private enterprise and increasing productivity. The Australian economy will not recover fully by means of increasing taxation and regulation.
The way out of the recession ideally should reflect the way in. The Morrison government introduced three initiatives to temper the economic impact of the close down. First up there was the economic reform package aimed at providing economic stimulus, followed by a $66bn support package aimed at business and households. Then came the huge JobKeeper program, aimed at making it possible for employers to connect with employees whom they have managed to keep at work or who are waiting to return to work.
Without question, JobKeeper has made it possible for many small and medium businesses to remain in operation. Again, this will facilitate the path to recovery when COVID-19 abates.
However, there is little doubt that this recession, which essentially has affected the private sector, has led to many shattered lives and businesses.
The men and women who have lost their livelihoods may recover their health, but many will lose their businesses through no fault of their own.
That’s why it is important that the economy opens up as soon as possible. Initially the national cabinet, the first time Australia has experienced such an entity, worked well. But its use may be fading.
The reluctance of the less populous states (Queensland, Western Australia, South Australia, Tasmania) and the Northern Territory to open their borders is detrimental to the important tourism industry and makes the life of small-business operators even more difficult than at present.
The advice of the Australian Health Protection Principal Committee, which advises the national cabinet, is that there is no reason the borders between the states and territories should remain closed.
Here some Australian governments give the impression that they are being run by public servants. Take Queensland Premier Annastacia Palaszczuk, for example. Early this week she said the opening of the Queensland border was not her decision but that of Queensland’s chief health officer.
There is no evidence that COVID-19 can be eradicated any time soon. It’s up to elected politicians to make decisions to reopen the economy while managing risk.
The federal government, with the recent support of NSW Premier Gladys Berejiklian, is showing the way. Their approach provides some hope. Otherwise the economic winter will be cold indeed.
Gerard Henderson is executive director of the Sydney Institute.
His Media Watch Dog blog
can be found at www.theaustralian.com.au.
On the road to Damascus: My trip through a ‘liberated’ Syria
The brutal Assad dictatorship is gone but is a new repressive Islamist regime being formed in Syria?
Trump remakes America with a revolution in common sense
Is Donald J. Trump a modern Moses leading his people into the promised land? Or is he the Apocalypse? It’s too early to tell, but the blizzard of activity in Trump’s first few days demonstrates he is reinventing America in his own likeness.