This would increase deficit, debt and taxes, make it harder for Australia to grow its way out of the downturn, and transform the short-term hit to the economy into longer-term shackles on future prosperity.
Seemingly aware of the lessons of past crises, and that the pen of history is now poised, the Morrison government has laid out the principles guiding its scaled-up stimulus. The aim is to ensure that the temporary emergency measures being quickly rolled out can be just as quickly scaled down when the crisis ends.
The politics of standing down the stimulus will prove tricky and the ‘temporary’ expansion of the state might prove more sticky than hoped.
In theory, this will avoid creating new programs and any structural budget impact that expands the size of government. In practice, the end of the crisis is bound to be messy, as the rate at which different businesses can finally reopen and reconnect with laid-off staff will be uneven. This means the politics of standing down the stimulus will prove tricky and the “temporary” expansion of the state might prove more sticky than hoped.
During the 2008 financial crisis, then prime minister Kevin Rudd prophesied the end of the “neoliberalism” of the Reagan-Thatcher era and a new age of social democracy that would save global capitalism.
But the state-funded financial bailouts in the UK and US actually led, on the one hand, to the rise of left-wing Bernie Sanders and Jeremy Corbyn-style anti-capitalist populism, and on the other to the rise of the right-wing protectionist populism of Brexit and Donald Trump.
Now, the ill wind of the coronavirus has filled the sails of the anti-globalisation advocates, including on the cultural right, calling for a move away from an open and liberalised economy towards a “fortress Australia”.
In an uncertain geopolitical environment, it’s one thing to buttress national security by securing medical and other supplies to combat pandemics and other threats. It’s another thing to suggest wholesale retreat from the market and the world.
Amid the wasteland of the shutdown, Australia’s immigrant-receiving, capital importing, commodity-exporting frontier economy will need to sharpen up in order to prepare for the post-crisis phase of productivity-led prosperity.
To help businesses survive, the emergency response has, for now at least, scraped off some of the regulatory barnacles that weigh on growth and productivity, by lifting restrictive work practices to save the jobs of hotel workers and administrative staff, and lifting trading hour restrictions on essential businesses.
This is the front on which Australia now needs to advance further through tax, workplace and red-tape reform.
With the hit to national finances to include a blowout in total debt to 40 per cent or so of GDP, Australia will need a more internationally competitive economy if it is to quickly grow its way out of debt and unemployment when the crisis is over.