Ideas@TheCentre – The Centre for Independent Studies

Ideas@TheCentre

Ideas@TheCentre brings you ammunition for conversations around the table.  3 short articles from CIS researchers emailed every Friday on the issues of the week.

Beware of a permanent shift

Simon Cowan

02 April 2020 | Ideas@TheCentre

The policy response to the coronavirus outbreak has moved at extraordinary speed. Australia is rapidly approaching a near total lockdown of the kind that would have been unthinkable two months ago.

The economic impact of this shutdown will be immense and last for months, at least — more likely years.

This has led some to claim that the cure is proving worse than the disease and we should be looking to restart the economy sooner rather than later. Yet it would be a mistake for Australia to follow this thinking.

Simply allowing large swathes of the population to catch a potentially fatal virus — even if the symptoms are typically mild for younger, healthy people — seems incredibly risky. In the absence of either a vaccine or proven treatment options, the most likely outcome is the complete overwhelming of our health system and hundreds of thousands of deaths.

In effect, the bargain we risk taking is 150,000 or more deaths for a milder recession. Would the public really accept that deal?

Unfortunately, the default alternative has been that the government should step in and simply absorb the economic losses for everyone. Cashflow packages for businesses, industry rescue plans for the hardest hit industries, wage subsidies for workers, and massively expanded welfare for everyone else.

How quickly we have abandoned self-reliance. Taxpayer support should be the last port of call, and only for those who cannot look after themselves. It should not be the first.

The socialisation of the costs of pandemic is not the only way of dealing with the crisis. There is a role for government to play beyond the public health arena, but it is not that of acting in loco parentis for the whole country.

The primary role for government, and more specifically the Reserve Bank, is to provide an overabundance of liquidity in the short term, and in the longer term boost inflation and growth to make paying off debt easier. Far from being concerned about too much inflation from quantitative easing, we should be targeting a higher base level of inflation to get the economy moving again.

At a minimum we should be wary of allowing a public health crisis to be the catalyst for a permanent shift in our view of the role of government.

This is an edited extract of an opinion piece published in the Canberra Times as Coronavirus: How quick we are to abandon financial self-reliance

Panicked welfare policy also viral

Glenn Fahey

02 April 2020 | Ideas@TheCentre

The infectious panic that was, until recently, limited to shopping aisles appears to have spread to Canberra decision-making — with sound welfare policy the latest victim of the virus crisis.

The government’s key economic weaponry is the bolstered JobSeeker (formerly Newstart) and the new JobKeeper payments. In announcing the latter, the PM argued government would “go as far as possible” with the scheme. That’s a far cry from light-touch government intervention into labour markets, but, as they say, desperate times call for desperate measures.

Changes to the JobSeeker payment — part of the ‘supercharged safety net’ — doubled the Newstart payment overnight (now around $1100). That means a windfall, particularly, for existing Newstart recipients — around three-quarters of whom have been on the payment long term.

Nobody wants to see mass unemployment translate into mass impoverishment. However, it’s somewhat hard to justify the $550+ increase to Newstart now, when government has previously and repeatedly rejected far more modest increases.

In any case, most recently displaced workers will be covered by the new Job Keeper payment. But this ‘hibernation’ employment strategy doesn’t come cheap and there are serious flaws in the scheme’s design.

For instance, workers most impacted by the crisis are likely to be better off than they would be if they were in work. That’s because the payment rate is based on economy-wide earnings — rather than benchmarked to the minimum wage, or the wages in the most shutdown-impacted industries (particularly, hospitality and retail). The new payment provides effectively an economy-wide wage floor of $1500 per fortnight (higher than the minimum wage — already among highest in the world), whether employees work or not.

The average weekly earnings in accommodation and food services industries is $575, and $813 in retail. So, the average displaced hospitality worker earns a wage rise of $175 per week without the burden of having to work! Still, that hasn’t prevented charges from unions that the payment is insufficient, instead arguing for a payment of $2750 per fortnight.

It will take political courage to withdraw generous payments when some workers — perhaps very many — don’t quickly transition back to work when the crisis eventually abates. It will also be difficult to resist the predictable calls for ongoing job guarantees, maintenance of the new de facto minimum wage, or, even a universal basic income.

But permanently generous unemployment benefits considerably weaken incentives to work into the future, and that will cripple our economic recovery efforts.

There’s no denying the call to action for government in this unprecedented crisis — nowhere more so than in welfare — but that’s all the more reason that policy can’t be a rush job, and can’t put at risk our eventual economic rebound.

Don’t waste a crisis with waste

Salvatore Babones

02 April 2020 | Ideas@TheCentre

Rahm Emanuel’s GFC quip about not wasting a crisis is resonating in the pandemic debate.

Now  as a news commentator, Emanuel has repeated his advice with regard to the coronavirus crisis. And lots of people want to take it. Here in Australia, there are renewed calls for a universal basic income, which would give everyone regular cash subsidies, whether they have jobs or not. Others are calling for a freeze on all residential and commercial rents.

Progressive think tank PerCapita goes so far as to claim that capitalism itself is ‘broken’ and the ‘era of small government is over’.

In reality, capitalism isn’t broken, and the idea that government has been shrinking over time is a complete myth. Going into the coronavirus crisis, spending by Australia’s governments (federal, state, and territorial) already accounted for over 36% of GDP — higher than at the height of the GFC.

What has changed over the past four decades is that government has been spending smarter. For example, instead of bearing all the costs of university education, the government now splits it with the students, while ensuring that no one is denied access to education due to inability to pay.

Government housing assistance has been shifting from difficult-to-manage public housing to third-sector community housing and housing support grants, which are able to help larger numbers of people live in better conditions.

Major changes to a country’s social policy model should only be made after years of evaluation and deliberation. They shouldn’t be pushed through in an emergency.

What we need now are tweaks, not transformations. Emergency government support should be focused on those who have lost their jobs and businesses, not squandered on those of us who are still collecting our regular salaries. ‘Never let a serious crisis lead to waste.’ That should be our motto.