Australia Needs a Plan for Economic Recovery
The key take-out from Treasurer, Josh Frydenberg’s, National Press Club address on Tuesday was that while Australia had a strong balance sheet in February when it went into the Covid 19 crisis, it was much weaker now. He reaffirmed this in an interview on Wednesday when the ATO revealed there was a less than anticipated demand for the Jobkeeper allowance.
Shadow Treasurer, Jim Chalmers, had called for an extension of the scheme to all casual and foreign workers and the Treasurer responded that Australia “did not have a money tree that it could go to for additional finance”. There is a view held by some economists that the Government can outlay much greater stimulus across the economy without adverse consequences. This can be done by employing the Reserve Bank’s balance sheet. But there are limits on the Bank’s capacity to print money.
The Treasurer is worried that the appetite in the global market for Australian bonds may fall away very quickly, which may make it expensive to borrow money and impose unsustainable burdens on future generations.
The alternative approach is to promote high growth and rapid increases in productivity which will build a bigger economy and reduce the debt burden. This is the Government’s approach but at the moment it doesn’t seem to have a plan for achieving its goals. Any plan will have to cover a number of key areas: financing and investment; migration; the labour market; energy; education; health; trade and the environment.
Decision-makers across the country desperately need some analysis of the capacity of the economy to finance economic recovery. This applies to both public and private sector finance. In Tuesday’s address, the Treasurer said that the ability of business to reconstruct supply chains is a necessary pre-condition to recovery. This will cost money. He pointed out that many firms would have difficulty raising capital in current conditions because Australia’s tax regime was not competitive. We need analysis of whether tax reductions will support firms to raise sufficient capital and the extent to which the Government may have to step in to fill the gap.
When it comes to migration there is a clear division between politicians like Kristina Keneally who want to limit temporary migration in a time of high unemployment and other commentators who argue that temporary workers are necessary for any boost in productivity. At the moment there is no migration because of the Covid 19 crisis which gives decision-makers time to formulate an approach.
If the priority is to reduce the pool of unemployed as quickly as possible the industrial relations framework needs to be reformed. It is absurd that a small-medium enterprise operating in the hospitality sector has to deal with 40 different awards. At the moment there is a tension between the union movement which is continuing to press for higher wages and the Government which wants to reduce unemployment. It is critical the Government, the unions and business reach an accord on a new industrial relations environment.
The need for a national energy plan has been recognized for some time. It will need to be endorsed by the Commonwealth and the states so the National Cabinet is the perfect institution to develop and agree on such a plan.
Now that students are going back to school attention will need to turn to higher education. One area of government stimulus that could be examined is the idea of continuing to pay higher unemployment benefits to people who undertake approved skills training. The Government will also have to look at a mechanism for getting funds into the university sector including re-opening the foreign student market.
There are two areas that will have to be dealt with on a multilateral basis; trade and the environment. The G20 needs to reaffirm its support for reform of the World Trade Organisation rules including a commitment to reduce protectionism otherwise the world will fall into the trap of engaging in ‘beggar thy neighbor’ policies under the guise of protecting ‘national sovereignty’.
It will also have to resolve the problem of climate change. There should be a global commitment to move to zero emissions by 2050 that is accompanied by an acknowledgment that, as the Chief Scientist, Alan Finkel has pointed out, the technology does not exist to achieve the necessary emissions reductions on an affordable, sustainable basis. The world needs an international agreement to openly share technology research and development in order to accelerate the necessary solutions to the current impasse.