March 28, 2020 04:00:01
Treasurer Josh Frydenberg told his Treasury officials earlier this week that the economy needed to be put in to cryogenic suspension. He was right.
By Friday, it had become official policy, only now called hibernation — possibly because it is easier to spell.
As we contemplate a general economic hibernation this winter, it is also time for the government to pause, just for a moment, and consider how its policy prescriptions to date, or even the ones that we know are in contemplation, do not support that plan.
What the Treasurer meant when he was talking to Treasury was that we need to be able to virtually freeze-frame the economy and all the people in it, just as they are, with their businesses, their employee/employer relationships, business/banker relationships, landlord/tenant relationships all preserved to be unpacked again when the threat of coronavirus has passed.
If we can do that, and avoid people being sacked, businesses being foreclosed or evicted, tenants being evicted, then the chances of a reasonably rapid recovery are that much better. We would not have to spend all the time involved rebuilding those basic arrangements, and confidence.
What does it mean in practice?
Suspended in place
It means that people don’t have to pay as many of the bills that they normally have to pay and can concentrate on surviving, in increasing circumstances where their businesses or households aren’t getting any income.
We are seeing more and more of this freeze-framing happening — either via government intervention or not — with banks being prepared to suspend business and mortgage payments, insurance companies suspending premium payments, and governments indicating they will suspend rent and taxes payments.
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That is great, and also pragmatically rather sensible if people don’t actually have the money for these things anyway. As long as there is a huge government-provided net to support such a thing.
The Reserve Bank’s actions last week do support a lot of this, as do some of the decisions of the federal and state governments.
But we also have to acknowledge just how dramatically the world, and the conversation, have moved on since the Federal Government released its first so-called “stimulus” package on March 12.
An idea that’s so March 12
The government spoke then of “supporting business investment” and “providing cash flow assistance to help small and medium-sized business to stay in business and keep their employees in jobs”.
It may have been well meaning, and went a lot further than people had expected, but as the economy has been in freefall, the idea that businesses might be encouraged to go out and invest, or even that small and medium businesses would keep their doors open sounds so, well, March 12.
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While the government has announced massive new spending subsequently to support the economy, it has with the other hand been taking necessary steps, driven by public health concerns, to close the economy down, with the obvious ramifications for small and medium business.
So while a big increase in social welfare was announced last weekend, it has had both a positive effect of providing support, but also negative one of making it easier for businesses to feel they can “let people go”, rather than trying to keep them on the books.
Similarly, the $715 million assistance package for the airlines — which have subsequently laid off close to 30,000 people — has been superseded.
As Virgin Australia chief executive Paul Scurrah said this week, the assistance would only be received, and only work, if the airlines continued to operate.
Business and government at odds
Hundreds of thousands of people have lost their jobs — or at least been “stood down” — in the past couple of weeks.
The Government has foreshadowed even more assistance is on the way.
But before we see these new measures, we need a clear-eyed view of where the gaps are now, in assistance already announced, and where the efficacy of that assistance has been diminished by the sheer scope of economic collapse.
The first is in that area of keeping employers and employees together.
The UK announced wage subsidies in the last week.
Our government remains steadfastly opposed to them, even though the most unlikely people are now advocating them.
Labor’s Jim Chalmers reports business leaders are universally saying this has got to happen.
The Government says it shouldn’t because it can more effectively deliver assistance through existing tax and social welfare systems.
Are there alternatives to a long wait?
The most conspicuous problem with that argument — the one we can most easily see — is what happened to the MyGov website and the Centrelink queues this week.
However, the most alarming problem with that argument — in terms of it actual effect — is that people aren’t going to actually get the assistance they need for at least a month — April 27.
Finance Minister Mathias Cormann said this week that “even using the existing system, the existing processes and programs, this is the amount of time it takes to get this additional level of support into the community”.
Let’s leave the damning indictment of how we have let our systems get to this point in a modern IT age for another day, and ask whether, if it is going to take a month anyway, surely there must be cause to at least look at alternatives?
Labor asks why the Government couldn’t use the single touch payroll system — which commenced last year and gives real-time data on employees — to create a different base from which to pay wage subsidies.
While we all mull that question, it is worth noting that while hundreds of thousands of people wait for assistance from the government, the UK wage subsidy is 80 per cent of previous wage capped at 2500 pounds a month.
By comparison, our new JobSeeker payment will be 80 per cent of the minimum wage, if you assume current levels of rent assistance.
Surely, if we want to keep a pulse in the economy we need a sizeable part of the population to have a slightly more sustainable level of income.
A super problem builds
There are still holes in the system too. The situation of households where one person has been laid off but not the other is one problem area. Tough withdrawal rates for levels of assistance as incomes rise really bite into the assistance households receive.
Equally, there are many visa holders in Australia whose situation is precarious, including hundreds of thousands of New Zealanders, international students, and others without residency who are stuck here, as well as asylum seekers.
There are also questions about what impact the government’s decision to allow people to get access to their superannuation — up to $10,000 this year and the same next year — will have on either a spooked share market and/or the superannuation system in the longer term.
Funds report being inundated with people trying to access their money — requiring big sell offs.
Just as we must all stay at home to reduce the ravages of this pandemic, we must put the economy to sleep in the best way we can to await better times.
That requires of our political leaders ever more flexibility and preparedness to abandon stubbornly held policy positions, particularly on wage subsidies.
The economy may need to go into hibernation, but our politicians have never needed to more awake to new ideas.
Laura Tingle is 7.30’s chief political correspondent.
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