New concerns surround the government’s increased use of legislative powers to bypass the parliament and create laws that cannot be amended or overturned. The federal government has embedded special powers in new Covid-19 laws to make unilateral changes to non-pandemic-related legislation, using what are known as ‘Henry VIII clauses’ – named for the unchecked power they involve.
Treasury’s plan for a new economy
Officials within Treasury have been tasked with reshaping Australia’s economy to ensure it is less vulnerable to future shocks once the country emerges from the Covid-19 lockdown.
Alongside those rapidly devising solutions to the immediate threat, a group has begun working on a longer-term plan to make the island continent more self-reliant in times of crisis. They are understood to be reassessing supply chains and seeking ways to better entrench Australia’s sovereign capability, especially its consistent access to essentials including fuel, energy and pharmaceuticals.
Traditional ideological positions are being jettisoned without a backward glance and there is a growing view that the economy as we know it now may never be the same.
Prime Minister Scott Morrison and Treasurer Josh Frydenberg have adopted what they call a “hibernation” strategy, forcing some businesses – and encouraging others – to close temporarily to support physical distancing measures to fight the virus.
Urging other G20 nations to emulate the move, they are using a boost to welfare, an unprecedented wage subsidy and other relief measures to ease the burden on business and workers for what they warn will be an economic freeze lasting months. But as leaders and officials grapple with what happens after the health crisis subsides, the ground is shifting quickly and enormous resources are being devoted to managing the present danger that is Covid-19.
The government unveiled the new subsidy scheme this week, having emphatically ruled it out just days earlier.
The scheme has a $130 billion price tag for six months – the biggest spending measure any federal government has undertaken. It may last longer and cost more. A pared-back parliament will reconvene briefly next week to pass enabling legislation.
The announcement represented a dramatic shift in conservative political thinking. John Roskam of the Institute of Public Affairs (IPA) is among those backing it.
“Aspects of the subsidies are unsustainable, too extravagant and ill thought through,” he says. “But the principle is right.”
The Saturday Paper has been told the government is now working to avoid unintended consequences of the flat fortnightly $1500 before-tax subsidy, such as the risk it will put pressure on wages at a time when the government will need business to be investing and people to be emerging, earning and spending.
One option is to have employers link the wage subsidy payment to hours worked – actual hours for those still working or nominal for those stood down.
Many more details are still being hashed out as businesses, unions, employer groups and workers flood the government with questions.
Unions and some business groups want temporary visa holders included in the subsidy – citing the fact many of these people have lost work, can’t access welfare and can’t go back home.
They are also pressing the case for casuals who haven’t been employed for the requisite 12 months, businesses that began less than a year ago and those that have built themselves up over a year but miss out because the test is a 30 per cent drop in turnover compared with 2019.
In political circles, a phrase is being batted around frequently, only half in jest: “We’re all Keynesians now.”
The past fortnight has seen the government move from measures worth tens of billions of dollars aimed at trying to prevent a technical recession to a salvage operation costing $215 billion, so far. Ahead of the first stimulus package, some of its strongest conservative supporters warned it wouldn’t be enough and that trying to rescue the June quarter was just the equivalent of whistling in a cyclone.
A mixture of factors played a role in the government’s wage-subsidy backflip.
The new Treasury secretary, Dr Steven Kennedy, is being given a lot of credit for swaying opponents to spending.
As one senior figure observed this week: “We as a nation are lucky he is in the role he is in now.”
Sources have told The Saturday Paper that other influential factors included the explosion in applications for welfare after the first round of physical distancing restrictions, which revealed Centrelink couldn’t cope with demand. The wage subsidy is instead paid through the Tax Office.
On top of that, those seeking welfare were suddenly a different cross-section of the community. Members of the government became more conscious of a perceived stigma in registering for benefits.
The wage subsidy scheme has been welcomed across the spectrum, despite its complexity and some design criticism.
As one key observer put it: “It has been palpable how much it has calmed people down.”
Beyond the immediate challenges, though, are even more wicked dilemmas about how to restart an economy going into “hibernation” and how it will look when it wakes up.
“We spent money to buy jobs,” says Chris Richardson, partner at Deloitte Access Economics. “As we head into recovery, you don’t want the engine of the economy to go cold. It’s really hard to get that started again.”
A few certainties are emerging. The free movement of people around the globe won’t resume for a long time.
James Pearson, of the Australian Chamber of Commerce and Industry (ACCI), says business must adapt quickly to delivering services online.
“The prize will go to the companies with the best digital infrastructure and who can teach themselves as quickly as possible to be as efficient as possible in the online world,” he says.
While the government has now funded special charter flights to export Australian produce, long-term travel restrictions will hurt many industry sectors, not least tourism and education. Unless special exceptions are made, many students won’t be coming back for a long time. Some never will. These and other consequences of the global pandemic are what is prompting a complete rethink.
Are we too reliant on other countries for supplies, especially China? Do we have enough capacity for self-reliance in essential services such as health, energy and transport?
“Do we have a strategic oil reserve?” Richardson asks. Innes Willox, chief executive of the Australian Industry Group, points to a lack of refining capability. He says the crisis has brought all of these questions into stark relief.
“Defence companies were getting very jumpy when China was in the depths of its situation because they weren’t getting supplies of nuts and bolts,” he says. “It’s as simple as that.”
Treasury has been modelling different scenarios on the duration and severity of the health crisis and associated domestic restrictions, offering various time lines for lifting them.
All are understood to show that, in order to stop Australia’s flattened infection “curve” from shooting up again, no one can enter the country without being forced to quarantine for 14 days or longer for some time. It is not clear whether this may need to continue until a vaccine is available or enough people have had the virus that widespread immunity lessens the spread.
For the economic fate of many regions, and the nation as a whole, the findings have dire implications.
Compounding this, along with the eye-watering sums of money the government is now spending, revenue from its tax base has been destroyed for the foreseeable future.
With hundreds of thousands, possibly millions, of people unemployed, and businesses closing – temporarily and permanently – personal and corporate income tax receipts will plummet. While supermarkets, pharmacies and manufacturers of toilet paper and cleaning products flourish in the new environment, other sectors grind to a virtual halt.
That also means very little GST, which in turn upends the arrangements to finance the states and territories.
How will that be resolved? Given the extra costs state governments face in policing and health, it will become an urgent problem.
In these circumstances, the massive spending prompts some to ask: How are we going to pay for it?
“I think we’re going to have to get used to levels of debt which we would’ve gone green around the gills about in the recent past,” ACCI’s James Pearson says.
With global interest rates low, there’s less pressure to repay.
“I don’t give a damn about the government debt number at the moment,” says Stephen Koukoulas, managing director of Market Economics and former adviser to prime minister Julia Gillard. “But when this finishes, we will need to have a bit of a look at it.”
He says this crisis may also pose the need for radical suggestions eventually, such as taxing major corporations on turnover rather than profit.
But The Australia Institute’s Ben Oquist warns hitting unprofitable businesses would not be fair. “What we’ll need to do is look at the taxes that … have the least negative consequences on aggregate demand,” he says.
Innes Willox also sees a need to look at tax. “I think there are going to be radical suggestions, whether we like it or not,” he says.
As the nation tries to pull itself out of a deep recession – some say, depression – there will be no appetite for austerity. The government has vowed to press on with stages two and three of income tax cuts, legislated for two and four years hence.
Both Willox and John Roskam say they could mount an argument for cutting the corporate tax rate to get business moving. Roskam also says this underscores the need to scrap regulatory red tape and that jobs must now be prioritised above all else, including environmental protection. “This has done what Adani couldn’t do: put jobs ahead of the environment,” he says.
But Oquist says there is now even more imperative to invest in new industries, including renewable energy. “I think there’s no doubt that the right, having lost the economic debate … will pursue the regulation debate,” he says.
In the wake of this massive spending, the government is having to confront the total abandonment of conservative principles it long held dear. It can no longer oppose big, interventionist government racking up enormous debt and operating with a budget deficit for years.
“That argument can never be made again,” says Oquist. “[It] was central to their economic message … Conservative economic ideology has just taken a battering.”
Stephen Koukoulas agrees. “We have a big shift to the left in how things are running,” he says, “because even these rusted-on Thatcherites and Reaganites are saying governments have an important role to play.”
Competition law is being set aside so rivals can work together to ensure the supply of essential goods and services.
The private hospital system has been effectively merged into the public sector – temporarily – to increase capacity.
On Thursday, the government announced childcare would be free for six months for parents working during the crisis. It has also raised the rate of the unemployment benefit with a new supplement – a move economists and analysts across the spectrum say will be virtually impossible to wind back, not least because such a cross-section of interests had been calling for a rise.
“That was our standout failure in the land of the fair go,” says Chris Richardson. “We were spectacularly unfair. I think that will change.”
Along with the wage subsidy, some argue this is starting to look like a universal basic income.
The government is also under pressure to contemplate bailing out key businesses, maybe even whole sectors.
Economists are divided on whether partial nationalisation may have to be considered in some sectors. Richardson says under some circumstances it might have to be. “Governments state and federal need to ask what’s strategic, what’s vital, what’s not going to be there on the other side,” he says. “And we should step in … It’s temporary nationalisation.”
Independent economist Saul Eslake says it should only be contemplated to prevent a monopoly.
“You’d put that in the category of things previously thought unthinkable that are options, if not have-tos,” he says.
The advocates say there would need to be strings attached – undertakings about more jobs and less corporate largesse – and possibly firm guidelines going forward on how companies would qualify, designed to help stop them needing it.
Sally McManus, the secretary of the Australian Council of Trade Unions (ACTU), says they should pay more tax, for a start. “A lot of these big companies don’t actually pay tax in Australia and yet when there’s a crisis, they’re the first people to put their hands out,” she says.
The pandemic is already bringing other changes. It has highlighted the need for real-time data.
Leaders in the national cabinet are accessing basic mobile phone GPS data to monitor the nature of movements of people around their cities in order to track the risk of the virus spreading.
The appetite for information will only increase as the crisis deepens.
Some in the private and public sectors are also embracing the new flexibility of working from home, realising executives don’t need to travel as much.
James Pearson says ACCI has shifted quickly to meetings via the video-conferencing website Zoom. “I know we won’t go back,” he says.
Sociological impacts need to be considered. Some businesses may use the crisis to downsize, finding they don’t need as many staff.
It has also exposed the federal public sector’s unpreparedness for remote work and the need to upgrade computer systems.
The situation is creating new alliances. Co-operative negotiations involving employers and unions have led to major temporary adjustments to industrial awards, building in flexibility to working hours and leave arrangements that was long resisted.
New relationships are emerging that were previously unthinkable. Some were brokered, at the government’s request, by former ACTU leader and Labor minister Greg Combet.
John Roskam praises Combet’s work. “I’ll forgive him for Patricks if he can help people get out of this,” Roskam says, referring to the unions’ victory in the controversial waterfront dispute of 20 years ago involving Patrick Stevedores. “He would have a better understanding of what small business needs than many of those big business people.”
Sally McManus and Industrial Relations Minister Christian Porter are in daily contact. The ACTU secretary is as surprised as anyone. She and Porter are working well together. “You see what everyone’s like, in a crisis,” she says.
Will it last?
“I don’t think you can go through a crisis, no matter what it is – whether it’s a personal or collective one – and ever emerge exactly the same. What that means and what it looks like, it’s far too early to tell.”
Innes Willox and James Pearson are optimistic. “You would hope everyone doesn’t go, ‘Oh well, that’s over, let’s go back to the way things were before,’ ” says Willox.
But that doesn’t mean a return to a formal arrangement like the Prices and Incomes Accord forged between the Hawke Labor government and the unions in the 1980s. “We’re in a different world now,” Pearson says. “We’re at least a generation past that.”
There is a live debate about whether Australia’s economy will remain as open to the rest of the world after this crisis.
Saul Eslake believes it will accelerate a retreat. He says factors include the ease with which countries have been able to close their borders.
There is now also a question of whether Australia is too reliant on imports and on particular markets for exports. But Stephen Koukoulas doesn’t think the Covid-19 pandemic will dramatically affect globalisation.
“Other than international travel, I don’t know that this is a globalisation question,” he says.
There is consensus that it will prompt a rethink on supply chains.
McManus and Willox want greater focus on self-reliance in manufacturing. “We are an island,” McManus says. “We need to be self-sustaining.”
But Willox says that means people will have to pay more.
McManus says the crisis has also exposed workforce over-casualisation.
She argues nations can get away with it through years of growth but not when there’s a crisis. “Suddenly, all the weaknesses get exposed,” she says. “Hopefully our society is a lot less tolerant of this as well.”
Even the IPA’s John Roskam says the social safety net needs to be expanded and the boost should stay. He argues there should also be a higher age pension – and a lower minimum wage.
Officials and leaders know that whatever they draw up now may be made redundant by the monumental scale of a health crisis nobody worldwide can quantify.
The virus has not yet fully taken hold in key parts of the developing world, where mass communications are less effective, health, hygiene and governance are poor and systems are completely inadequate to deal with the scale of the threat. The risk to those populations and the implications for them – and for the rest of us – is haunting decision-makers across the globe, including in Australia.
And that means in six or nine months, all of this blank-page economic design work might look like that early stimulus package does now: just whistling in a cyclone.
This article was first published in the print edition of The Saturday Paper on Apr 4, 2020 as "Treasury’s plan for a new economy".
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