Morrison needs to find his finest hour
Political capital built during the virus crisis must be spent wisely on reform.
For Australia, the great challenge lies ahead. The test is whether we change our ways to combat the economic contraction or stick by the old politics of partisanship and complacency. It is Scott Morrison’s Churchillian moment, the question being whether he can bring the political class with him.
There is one certainty: if the political system and key players — government, opposition, crossbenchers, business, unions and media — repeat their performances of the past decade they will doom hundreds of thousands of Australians to unemployment and misery.
This is not some theoretical debate about economic reform. For a long time there has been a stock phrase about Australia: “We need a real crisis to get economic reform implemented and reboot the country.” Well, the crisis has arrived. It is breaking upon us. If 10 per cent-plus unemployment cannot generate a breakthrough reform agenda then nothing will do the job and all the good work on beating the virus will be compromised.
The crisis sees a new zeitgeist. It is everywhere yet its ultimate meaning is still unknown. The Prime Minister and Josh Frydenberg are agents emboldened by history — witness the $214bn fiscal packages; their recruitment of the private banks to buttress credit; Morrison’s global log of claims against China, warning that it cannot deny the world an inquiry into the origins of COVID-19; the Treasurer’s stand this week against the big tech giants, Google and Facebook; and Morrison’s determined promotion of the contact-tracing app.
Morrison, following the warning from Reserve Bank governor Philip Lowe, says the economic reform task “is bigger than anything we’ve known for a very, very long time, arguably since the Great Depression”. The message from inside the government is the situation demands the most substantial reforms since the Hawke-Keating agenda of the 1980s. The latest concept from Morrison is “harvesting” — extracting a new economic agenda from all the reports over the past decade that were largely ignored, victims of failed politics.
Three principles govern the Morrison-Frydenberg approach. First, an open mind and “fresh eyes” on the agenda — this is fundamental. Returning to the Coalition’s pre-crisis ideological nostrums won’t work. “We’re looking at all options with fresh eyes,” Morrison says. He wants to affirm his pragmatism, break from ideology and strike a balance between new and old ideas (rejecting tax increases will stay but selective government intervention is on the table).
Second, Morrison as a transactional leader seeks to find consensus, agreements and bargains among the three critical parties — premiers, business and unions. He wants to build on the concord from fighting the virus. Morrison says: “We’re trying to harness what I think is a very strong institutional ambition here” — naming business, unions and states. He says: “These are all important relationships being forged during this crisis which we can put to work for the broader economic recovery” including the “excellent” working relationship with the ACTU.
The guiding principle for reform is “to get Australians back into jobs”. The goals are jobs, investment and growth. Being realistic, item-by-item deals are the best Morrison can hope for. Forget any grand bargain, that’s impossible. This crisis poses an immense challenge for the left of politics, notably Labor and the unions. What is their role? For a decade they have offered a rigid ideological agenda — no industrial relations reform to create more jobs, greater union statutory power, hefty increases in government spending and higher taxes on virtually every asset class.
This framework won’t work with 10 per cent unemployed. If Labor under Anthony Albanese doesn’t change, just plays to its sectional interests, shuns the Hawke-Keating response of thinking outside your circle, it is likely to find its vote falling, not increasing, at the next election.
Third, for Morrison the reform agenda is imperative. This time there can be no escape, no retreat, because the politics look hard. That would deny the historical moment. Morrison feels he is ready. Indeed, whether it is holding China to account, pushing hard for schools to go back, betting on take-up of the tracing app, his assertion, not too short of aggression, is hard to constrain. That works but only if the policies are right.
For better or worse, Morrison faces his Churchillian moment. He knows challenge and opportunity are woven together. As leader, he is trying to summon the resources and willpower of the nation to negotiate a new economic framework for recovery. Personal jealousies and vested interests will inspire opponents from both left and right.
He needs to beware: the 1980s are history. The institutional consensus of the 80s based on the ALP-ACTU Accord is long gone. It will not reoccur. Deals can be done, hopefully, on different measures, but consensus can be a trap as much as a bonus.
Morrison’s stance on China warms the heart of most people: it is justified on moral and health grounds. But it is dangerous and guaranteed to backfire if seen as operating in some anti-China concord with Donald Trump. That would have potentially damaging consequences.
The government is now working to create a climate for reform. This week’s speech from the RBA’s Lowe was important. The key ingredients are a close Morrison-Frydenberg relationship, their confidence in the Treasury under Steven Kennedy, the partnership with the Reserve Bank, the National COVID-19 Co-ordination Commission under businessman Nev Power with its chief administrative officer being former Productivity Commission chairman Peter Harris and the Prime Minister’s Department under Phil Gaetjens. Morrison’s three years as treasurer is critical in this process.
It is too early to be definitive on the agenda but there are distinct signs. Morrison wants to move away from subsidies, government income support, protectionism and, as the government’s stance on Virgin shows, avoid taking equity positions in companies. On Virgin, the government has acted on market-based principles believing a new ownership structure will result. The legislated personal income tax cuts will stay, the only possible issue being whether they are brought forward. As Morrison and Frydenberg say, the strategy is growth, not tax increases.
The aim is to rekindle jobs and private sector investment. The budget will contain tax incentives for business whether a cut in the corporate rate or investment incentives is yet to be decided. Business Council of Australia chief Jennifer Westacott says business is not asking for the “lowest” rate, just a “competitive company tax”. Morrison rejects taking up Labor’s 2019 tax increases and dismisses both negative gearing and franking credit changes. But payroll tax reform needs to be addressed and reform of state taxes is sure to get attention.
Lowe’s list includes tax of income, consumption and land. The government will need to decide how far it opens the lens on tax reform. That’s complex and tough politically. It may yet shape the politics of the next election. The nation needs to expand consumption taxes and reduce reliance on income taxes. But Labor’s apparently frozen ideological opposition makes this almost insurmountable without a compact from the premiers and that’s unlikely.
Morrison and Industrial Relations Minister Christian Porter want action on the industrial system to promote jobs. Porter is suspending the normal playbook. It’s off the agenda for six months and that includes his prized Ensuring Integrity Bill to improve union accountability. Porter says: “What we have is an opportunity to actually sit down with the leadership of the union movement and talk about the things they think are going to produce the most jobs and the most wages growth.”
Porter’s message to ACTU chief Sally McManus is: let’s talk and negotiate. Morrison and Porter want to bargain and cut a deal with the ACTU. This is probably a shock and a challenge for the trade unions. But McManus had her union agenda obliterated at the election last year: she needs a new strategy, big time.
The government’s aim is to boost wages, not attack them as Albanese claims. The ACTU wants action to protect casuals. The government wants action on greenfields projects, award simplification, enterprise bargaining and agreement on tourism and hospitality to create more jobs. Porter concedes this is “never easy”. The question remains: will the Opposition Leader and the ACTU keep saying no reform of the industrial system because some workers may end up worse off when hundreds of thousands are still on the dole? Almost certain, however, will be action on skills and training with Morrison identifying the 2017 Productivity Commission report Shifting the Dial inspired by Harris. The most immediate and relevant item here is fixing vocational education and training. In addition there’s scope in this report for health and education efficiencies. That opens the way for deals with the premiers.
There will be an emphasis on manufacturing with two dominant themes — cheaper energy to boost competitiveness and a more sophisticated agenda for advanced manufacturing relying on research and innovation. Infrastructure will be centre stage. Expect the commission headed by Power to produce ideas on this front.
On energy policy, the government will not return to the Turnbull government saga of the national energy guarantee despite speculation. How will the COVID-19 event reshape policy and public sentiment on climate change? The virus may diminish climate change as a public priority. Labor will fight to resist this. The government’s likely parameters will be the drive to cheaper energy and the effort to maintain credibility on emission reductions.
Recent history shows opinion on climate change fluctuates, moves in cycles and is not linear. Pressure will remain on the states to ease restrictions on development of gas reserves and the liquefied natural gas sector will scale back investment plans. The government is interested in faster approval times for major projects and correcting excessive environmental hurdles.
“We have brought ourselves time to get this right,” Morrison told Sky News’ Kieran Gilbert on Friday. His aim is to “get our economy opening up as quickly as it can subject to the health constraints”. He won’t be drawn on policy specifics. He wants to keep as many options on the table as possible. But that’s also dangerous. At week’s end he said: “We are looking afresh at all of the work that has been done over the past decade.”
History suggests the central problem will not be devising a bold policy framework; it will be, rather, securing enough parliamentary and political support to implement a new agenda for the country. Pivotal to the coming reform agenda is the question of trust.
Has the performance of governments, state and federal, in combating the virus restored some of the diminished trust in the political system? It should. Of course, populists from the left and right use every change to play the distrust card; witness the debate about the app. Morrison needs the nexus of more trust and more reform; they rise and fall together.
Lowe warns national output is likely to fall 10 per cent with total hours worked likely to decline by 20 per cent in the first half of this year. That constitutes the worst economic contraction since the 1930s. Some businesses will not reopen, debt will be far higher, households will reassess priorities, the economy will experience structural change and business models will be revised. Lowe’s message is the need to “reinvigorate the country’s growth and productivity agenda”.
Former Productivity Commission chairman Gary Banks told Inquirer: “I think the spectre of unemployment, in some form, is now affecting virtually every family and every workplace in the country. I think Australians have an intolerance for high levels of unemployment and that augurs well for economic reform. But again, everything depends upon a government making the argument effectively. You cannot expect a crisis by itself to bring about reform.”
Banks reminds that consensus is double-edged — great if it works and counter-productive if it fails. He says the policy agenda should be pitched through a double filter — meeting the needs of short-term job creation and long-run productivity gains. “Neither this government nor the government that preceded it have been effective at generating consensus for reforms,” Banks says. “The issue is whether consensus delivers worthwhile policy or goes in the wrong way. If we are looking at consensus that is multi-jurisdictional and multi-institutional then that’s not going to be easy.
“The changed labour market means the government should be able to tell a story about getting people back to work. Such reforms should be easier to explain to the public and defend against opponents. To the extent they deliver early results this should help to rebuild public trust. But if the reform potential of this crisis is wasted, as it was during the global financial crisis, it is hard to be optimistic about our economic future. Without the increased dynamism and productivity growth that reform can secure, Australia may yet be destined to become a banana republic.”
Former Treasury and Prime Minister’s Department head Martin Parkinson says: “There are few officials today who have lived through a significant economic downturn. This downturn is affecting different sectors of the economy in different ways. My concern is the supply-side disruption may prove much more lasting than many people realise. The risk, therefore, is the recovery and damage to the economy and jobs may be more protracted than currently anticipated.
“The government’s reform agenda cannot just involve a recycling of past ideas. It’s not that the established reform agenda is not worthwhile. It is worthwhile. But it is not sufficient. We must move with the times — that means an agenda far better geared to innovation, the digital age and a national strategy to revive our opportunities with Asia, more than ever, the key to future global growth and our prosperity.”
A critical issue is the extent to which Australia’s success in combating the virus converts into political capital. As Morrison says: “In countries that are smaller than Australia, like Belgium, 6262 people have died. In The Netherlands, 4068 have died, in Sweden 1937 people have died. If you look at the fatality rates as a proportion of population, in the United States it is almost 50 times higher than Australia. In France it is over 100 times higher than Australia. In the United Kingdom also, just under 100 times higher. In Germany, it is over 20 times higher. In Switzerland it is over 60 times higher, Denmark over 20, Norway 12. These are all sophisticated, developed economies with good health systems.”