What’s Next for Australia After COVID-19?
The Coronavirus pandemic has to be the most important event that has happened in my life. What we have seen is an economy that has been forced to close, life as we know it has altered, to a more home oriented setting. It is changing the way people are working, and it is changing the way people are studying, with programs such as Teams, Zoom and FaceTime seeing increased amounts of usage.
It is likely to ensure unemployment in Australia will hit around 10%, about double what we had pre-crisis. The Australian Federal Government has attempted to mitigate this by using its $130 billion JobKeeper program, which subsidises many people’s wages. It claims that unemployment would rise another 5 percentage points above their estimates, had this program not be implemented. Retail turnover, however, has shown an increase of around 8.5% in March. The bulk of this sudden increase came from food retailing and household goods retailing. A hypothesis for this sudden increase is the panic buying that occurred when news of this virus broke out and the country started to lock down.
However, even with this spike in retail spending, we are still likely to see deflation this year, potentially being the worst decrease in inflation since the 1960s. This is being driven by business slowdowns and a remarkable decrease in fuel prices. I remember driving around Newcastle a couple of days ago and seeing premium 98 fuel at $1.04, which I don’t think has ever happened in my lifetime! I would suggest now is the time to get some fuel and make it last!
Following economic crises, governments are usually keen to implement some sort of reform to get productivity and economic growth to a level that is satisfactory. Often you will see the usual suspects touting tax reform and industrial relations reform to promote growth in the economy. Those proponents are likely wanting to further deregulate industrial relations and shift the tax burden in such a way to create more indirect taxation, which has a negative distributional impact on the less well-off. We cannot take such a narrow view on what could be done to bring the Australian economy back up to speed again. There are some concerning murmurs coming from the Opposition, who are potentially going to drop some of their more expensive and transformative reforms, as they claim they would be fiscally constrained by the virus. This is a fundamental misunderstanding of how an economy works. I would recommend the Opposition keeps their promises of investment in the economy. If one subscribes to neoliberal economic ideology, they would promote government spending restraint and inflation control during economic crises. Yet when a government is restraining its own spending, it is acting as a brake on aggregate demand and is in itself acting as a brake on the economy.
However, we should be binning the idea of restraint and austerity during bust periods. John Maynard Keynes advocated for spending during economic downturns, as it makes the landing softer and can often prevent the economy from going backwards. A stellar example of this is Australia, who decided to engage in multi billion dollar stimulus spending to keep the economy alive, which included payments to families to prop up the retail industry, and engaging in infrastructure spending, such as school maintenance, energy efficiency improvements for houses, plus social and defence housing. All of this allowed the construction industry to also not fall under. These measures enabled the economy of Australia to miss a recession, and gave us fairly strong growth in the following years. It may have added to public sector debt, yet I would strongly advocate for that being money well spent. Recessions can have long lasting impacts on economies, and by spending now, you can potentially save later.
If we are going to use the Australian Government’s response to the Global Financial Crisis as a guide for our economic response to the COVID-19 pandemic, here are some things that we should consider:
Bringing forward infrastructure spending: This is a brilliant opportunity for governments at a Federal, State or local level to clear the infrastructure backlog that is present. Fewer people are using roads, paths and rail at this very moment, so now is the time for governments to resurface and build new pathways, roads, cycleways and railways. We could start seriously considering fast rail between population centres such as Sydney-Canberra, Melbourne-Canberra and Brisbane-Toowoomba-Gold Coast-Sunshine Coast. We could take this opportunity for government agencies and the private sector to engage in a more serious commitment to fibre-optic internet, and to start taking seriously the potential benefits of 5G mobile internet. This can enable the country to come out of the crisis more technologically advanced than it was before. Governments can also choose local manufacturing for things such as trains, as a way to help reduce unemployment.
Seriously consider upping the rate of social welfare benefits: This crisis has shown that basically anybody can fall on hard times. The Federal Government has temporarily increased welfare payments to those on unemployment benefits, youth allowance, and a range of other Government transfers. This may be an implicit admission by the government that the welfare rates pre-virus were seriously not enough to live on. This should give the government serious pause to think about what it is going to do with social welfare post-virus. These payments should be enough to get by on, and will have the added benefit of also stimulating the economy by increasing the amount of people willing to pay into an economy, rather than being parsimonious with their money.
Green jobs and infrastructure: This is a time where taking environmental action is more important than ever before. It is also a grand opportunity for governments and private entities to really invest in green jobs. I believe they are the future. Let’s start building more solar farms, more wind farms. Let’s build more battery storage. Let’s consider more pumped hydro storage. We should be rolling out super fast charging car charging stations, to make them as prevalent as petrol stations. Employ those who are going to lose work in the extractive industries and train them for a greener future. We cannot leave people behind in a crisis. A government worth its salt will ensure as many people as possible can prosper after a crisis is over.
Supporting local industry: Since I am promoting a higher spending approach to getting the economy going again, might I suggest we talk about manufacturing and local industry? We have seen a steady decline in manufacturing in Australia over the past few decades, owing mostly to the effects of globalisation, lower wages, and regulations in developing nations. What this crisis has highlighted is that you cannot put all your eggs in one basket. There are a few manufacturing hubs in the Asia-Pacific region, namely China, Vietnam and India. This crisis has demonstrated what a mess a supply chain can be when there is disruption. Governments at every level should be incentivising companies to keep their manufacturing here, or repatriate it, as governments stand to gain a net benefit from this via reduced unemployment and higher exports. It would also add a layer of self-reliance on the economy of Australia, as we wouldn’t be quite as vulnerable to external shocks as we are now. Mind you, I wouldn’t suggest creating trade barriers. We could use our newfound exporting capacity to trade around the world. The sort of trade war rhetoric promulgated by the United States and China is highly dangerous, and demonstrating that free trade is an enabler of peace.
Supporting and promoting local talent: Institutions such as the CSIRO and ABC have seen their funding undermined in the past 6 years or so. If we are going to engage in a high-tech economic recovery, then we need to invest in industrial and other research. This is what the CSIRO is designed for. We are seeing a brain drain occur in the fields of science and technology, and this will have negative future impacts on our capacity to innovate and grow. We should also be promoting local arts content. We have amazing institutions such as Screen Australia and the ABC. Lets use these institutions for good, and hire creative people to put Australia on the world map on the creative stage. This means not cutting a billion dollars out of the budget of the ABC. Invest in the people now means investing in the future of Australia. We must also reinvest in the trades sector, which means properly funding TAFEs around Australia. If we want an industry-led recovery, we should be investing in those involved, and encouraging people into the field. We should also not pass this opportunity up to invest in our universities. Currently they are relying heavily on international intake, to offset successive government budget cuts. Let’s reinvest in our universities, to give us world class research and world class talent.
We should never give up any opportunity to invest in ourselves and the future. Taking this unprecedented moment and running with it will ensure Australia will remain competitive on the global stage, will ensure our cities, towns and infrastructure work for us, and that we will foster a strong local economy, full of talented people and talented ideas. Carpe Diem!
