Dos and don’ts for recovery

Simon Cowan

16 July 2020 | Ideas@TheCentre

Governments have operated in crisis mode more or less continuously for six months, introducing flawed policies quickly in response to the bushfire crisis and then Covid-19.

Governments now must take stock and make smarter decisions about the direction of the economy and policy. While there are many options to take, here are three things the government should do, and three things they shouldn’t.

Do: let Jobkeeper end as scheduled.

Whatever your perception of the merits of Jobkeeper during the crisis, the government must not allow itself to get painted into a corner where it is forced to extend Jobkeeper, possibly indefinitely.

A recovering economy cannot afford to pay a million people a supercharged unemployment benefit not to look for work.

Don’t: give in to special pleading

Everyone with a barrow to push is arguing why it’s the ‘perfect’ time to put taxpayer’s money into their pet project.

While there are many reasons these individual proposals are a bad idea, the question to ask is: if something isn’t viable when times are good (like car manufacturing), how can it be better when things are bad?

Do: follow through with tax reform

The government should neither delay nor diminish the scope of its already passed tax reform packages. Moreover, it should commit to cutting Australia’s high company tax rate.

Don’t: abandon monetary policy in favour of fiscal stimulus

If the past 50 years have taught us anything, it is that monetary stimulus has been proven relatively effective in boosting growth potential, while fiscal stimulus has been proven to be costly and largely ineffective. Governments would do well to remember these lessons.

At the same time, it should publicly remind the RBA of its role in managing macroeconomic conditions.

The RBA is not out of tools or ammunition with which to fight deflation. It should be encouraged to use them.

Don’t: waste taxpayers’ money because its ‘cheap’

Another spurious argument is that government debt being historically quite cheap, makes it a great time to borrow.

Governments are notorious for making objectively terrible ‘investments’. Encouraging them to reach for even more marginal projects because debt is cheap is basically a licence for pork-barrelling.

Do: reschedule or abandon the increase in the super guarantee rate

Superannuation is a deeply paternalistic institution that acts on the premise that individuals won’t save enough money for their retirement unless forced to by law.

The government should show confidence in individuals and allow them to make their own choices about superannuation — and defer (preferably permanently) scheduled increases in the compulsory super rate.

The next six months will be crucial in determining our path out of this crisis. Governments that attempt to stand athwart the economic flows, propping up failed businesses and policies, will be setting their countries up for a protracted downturn.

Those that focus on productivity and growth-oriented policies — accepting the downturn will occur, but aiming to make it temporary — will see their countries emerge in a stronger position than their rivals.

Which path Australia follows depends on whether the government trusts and empowers people, or tries to shield them from reality.

This is an edited extract of an opinion pieced published in the Canberra Times as Dos and don’ts of managing an economic recovery.

 

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