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.

Welfare windfall to linger

Glenn Fahey

16 July 2020 | Ideas@TheCentre

Tapering — rather than topping up — income support is key to sustainably and compassionately backing Australia’s vulnerable households and firms.

The defining challenge facing policymakers through the course of the pandemic will surely be the troika of averting the dreaded employment cliff, keeping the economy afloat, and maintaining social cohesion.

The task is set against the backdrop of promising signs of economic recovery — before the Victorian shutdowns — in workforce participation and employment in figures released yesterday. While unemployment has jumped, this is mostly because more people are looking for work, rather than more people being laid off.

Yet, mixed signals have been sent as government comes to terms with the second wave of pandemic welfare intervention. The signature schemes — JobKeeper and JobSeeker  — will remain front and centre, though they’ll be tweaked in the weeks ahead.

However, it’s clear that sustaining the JobKeeper scheme in its current form is not only prohibitively expensive, but also unjustified — particularly as more of the real economy unfreezes from hibernation.

It’s true there are sectors of the economy still under the pump due to government-induced shutdown orders — most acutely felt in entertainment, hospitality, and tourism.

But government is now simply suppressing natural attrition and procrastinating the required adaptation of firms to what is a rapidly evolving business and consumer landscape.

The truth is that distortions created by JobKeeper risk being more malign — long term — than a light touch approach; at best flattening, rather than lessening, the curve on economic pain.

While the technical details of the ongoing JobKeeper scheme are to be spelled out next Thursday, government has indicated that some degree of support will remain beyond the September deadline.

The promising sign is that JobKeeper will be tapered — via a reduction in the entitlement, a restriction in eligibility (that is, a tighter revenue threshold to meet), and will be targeted (to industries genuinely impacted rather than being universal).

This will reduce market frictions. But more will be needed to facilitate the transition of zombie firms — potentially by relaxation of bankruptcy conditions — and shifting affected individuals from JobKeeper to the unemployment benefit, JobSeeker.

Another element of the welfare response is yet more blunt attempts to prop up households’ spending. That’s included circulation of further one-off cash payments commencing this week; particularly to aged pension recipients.

What will remain a battleground is reaching settlement on the permanent unemployment payment. Despite recently rebuffing a rumoured $75 per week increase to the JobSeeker payment, the government remains committed to sustaining an elevated lifeline.

Whatever settlement government proposes, it’s hard to see it satiating demands of agitators seeking to entrench generous entitlements — even to ambitiously replace current welfare approaches with job guarantees and universal basic incomes.

Government faces difficult and consequential decisions on the future of welfare. As ever, long term interests of recipients, taxpayers, and the broader economy are best served by sharpening incentives — rather than suppressing them — and unleashing the potential of markets.

BLM’s inconvenient truth

Jacinta Nampijinpa Price

16 July 2020 | Ideas@TheCentre

The greatest failing of the Black Lives Matter movement in Australia, and a complete contradiction to their cause, is that it ignores the lives taken at the hands of other black people. It is also driven by the false claim that black deaths in custody are a result of systemic racism by allegedly murderous white police.

The fact remains for Aboriginal Australians, as it does for African-Americans, that far more black lives are taken by other black people than by white people, or by white police.

While this is an inconvenient truth for the Black Lives Matter movement it is a fact we must confront if we are to improve the lives of Aboriginal Australians in Australia. Unfortunately such movements favour emotional rhetoric over fact.

Of the 400-plus Aboriginal deaths in custody since the Royal Commission into Black Deaths in Custody report in 1991, almost half in police custody were accidental, mostly as a result of  vehicle accident injuries, followed by natural causes and self-inflicted trauma.

For deaths in prison custody after being sentenced, most were due to natural causes, followed by suicide and other self-inflicted causes due to drugs and alcohol.

From 1989–2012, the Australian Institute of Criminology reports there were 1,096 homicide incidents involving at least one Indigenous person. There were 951 Aboriginal victims of homicide, more than double the 437 deaths  that Black Lives Matter protestors are solely concerned with. Of the 951 Indigenous homicide victims, 765 were killed by an Indigenous offender.

Of the 7,599 Australian homicide offenders (Indigenous and non-Indigenous) over that time, 16 per cent – or 1,234 – were Indigenous, yet we are only 3 per cent of the Australian population.

The facts are clear. Yet Black Lives Matter, some media and some of our country’s leaders ignore these fundamental truths. This only perpetuates the ongoing carnage and maintains the high rates of Indigenous incarceration.

It’s time for some honesty in order to confront these uncomfortable truths.

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.