In a week we have shifted from a globalised liberal economy and free society to a command economy with closed borders, regimented movement and a welfare state.
And through necessity, all sides of politics support it.
When COVID-19 is over will people demand stronger government (to cope with crises) or pine for laissez-faire (to allow free-will)? That’s an important debate.
But the pressing fiscal challenge is how federal and state governments will fund the huge payments for keeping households and business afloat during this health and economic crisis.
There are basically four choices:
- increase taxes, fees and charges (which would worsen the economic slump),
- sell bonds to private investors (which will increase debt, possibly increase interest rates in the short term and require higher taxes in the long term),
- sell bonds directly to the Reserve Bank (which would defer interest rate increases but still increase public debt and require tax rises in future), or
- sell zero coupon perpetual bonds to the RBA (which if it agreed to buy them, would effectively be printing money).
None of these mechanisms is appealing; but given this is an emergency with hopefully a finite timeline, the last option may be the most palatable.
In any case, this is a discussion that urgently needs to be had between the National Cabinet and the wider public — since the path chosen has huge implications for taxpayers, retirees and future generations.
Percy Allan AM is a public policy, management and finance adviser; a former Secretary of the NSW Treasury and Chair of the NSW Premier’s Council on the Cost and Quality of Government.