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As details emerge of the government’s plan for economic recovery, it is clear young people will suffer the brunt of the pandemic’s fallout for years to come. By Mike Seccombe.

The generation Covid-19 will scar

People queue outside a Centrelink office in Melbourne in March.
Credit: AAP IMAGE / SCOTT BARBOUR

Just after noon on Wednesday, Scott Morrison sent out on social media an ominous message for anyone concerned about inequality of opportunity, income and wealth in Australia.

“Just got off the phone with US President @realDonaldTrump,” our prime minister tweeted. “We had a very constructive discussion on our health responses to #COVID19 and the need to get our market-led and business centres economies up and running again.”

In a second tweet, Morrison revealed the pair had also discussed the World Health Organization. He ended: “Australia & the US are the best of mates & we’ll continue to align our efforts as we work towards the recovery on the other side of this virus.”

The prospect that Australia will “align” with the Trump administration on any of these issues is more than just interesting. The United States president’s bungled response to coronavirus has seen America record about a third of all global infections, and by far the highest death count of any country. His decision to withdraw funding from the WHO has been met with appalled responses from many leaders around the world.

Of course, it’s entirely possible Morrison was merely trying to placate the erratic and narcissistic president in relation to those health issues. But it’s far from clear that’s the case on the economic front, given many other recent signals from the Morrison government and its supporters.

Josh Frydenberg, for example, went on ABC Radio the same day to spruik the case for tax cuts for big business, more deregulation and changes to the industrial relations regime.

The treasurer stood by the government’s commitment, made before the biggest economic crisis since the Great Depression, to limit the government’s total tax take to 23.9 per cent of Australia’s gross domestic product.

He recommitted to huge personal income tax cuts – legislated, though not yet implemented in full – that heavily favour high-income earners. The personal income tax cuts passed last year will cost $158 billion over a decade and come on top of a previous cut worth $144 billion, passed by the Turnbull government.

Frydenberg also said getting legislation through parliament that would allow for easier disqualification of union officials and deregistration of unions remained a “first order of business”. He described Australia’s corporate tax rate as “uncompetitively high” compared with those of the US, Britain and Singapore – all three countries with vastly less equal societies than our own. Business groups are pushing for an across-the-board company tax rate of 25 per cent.

Frydenberg, however, remained noncommittal on a range of other measures suggested by economists, including the governor of the Reserve Bank, that might bring greater equity and efficiency into the system.

It doesn’t take much reading between the lines to see what the government’s plan for recovery from this economic catastrophe is, for it is essentially the same as it was before. In good times or bad, the prescription’s the same: small government, lower taxes, trickle-down theory. The coronavirus might be novel, but the conservative response is not.

The government was forced, in defence of the lives of mostly elderly Australians, to briefly diverge from its ideological predispositions, blowing away its never-quite-achieved budget surplus with hundreds of billions of dollars of emergency spending. But, as infection and death rates recede, ideology has come roaring back.

The most obvious manifestation to date has been the conflict between Labor and the Coalition about the proper response to the collapse this week of Virgin Australia, with the government insisting on a “market-led” response, while Labor and the unions have called for direct government assistance – by way of a bailout, or the taking of an equity stake. Undoubtedly, this will not be the last such tussle, as more embattled companies knock on the doors of government, seeking financial assistance in the weeks and months to come.

But the uncertain future of Virgin hardly compares to the uncertain future of millions of mostly young Australians, and of Australia’s status as a fair society. How we cope with a massive increase in unemployment and underemployment will be the real ideological test.

Old battles are about to be fought once more: on tax, on workers’ rights, on the role of government in stimulating recovery. On the Labor side, they are lining up behind leader Anthony Albanese and shadow treasurer Jim Chalmers to accuse the government of preparing to mount “further attacks” on the wages and conditions of working people.

But even if the government does not pursue measures designed to shift power and resources from labour to capital, or pursues them and is beaten back in parliament, coronavirus will do the job for them.

Economic slowdowns almost invariably increase inequality in societies, and all the more so absent major government intervention. Morrison’s tweet – suggesting his government’s response will be market-led and business-centric – portends not a great deal on the intervention front.

One of the major reasons that inequality hasn’t grown in Australia to nearly the extent it has in other countries is that we’ve managed to go 27 years, so far, without a recession.

When the Rudd government saved Australia from the worst of the global financial crisis through massive and targeted stimulus just more than a decade ago, it avoided not only recession, but also something far more important and enduring. The spending package rescued us from becoming a far less equal society.

Rudd’s government had help, it must be acknowledged, from Australia’s well-designed social safety net and well-regulated labour market – and also benefited from the Chinese government’s own stimulus, but the bottom line is that at a time when the world economy experienced a huge shock, Australian incomes continued to grow. And inequality actually decreased marginally over the succeeding few years.

This did not happen in most other places. Look, for example, at the US. There, the labour market tanked, and house prices crashed. Meanwhile, the sharemarket boomed.

As the Harvard Business Review noted in a review of the effects of the GFC a decade on: “The consequence of substantial wealth losses at the bottom and in the middle of the distribution coupled with wealth gains at the top produced the largest spike in wealth inequality in postwar American history.”

Inequality in the US has only been exacerbated by the Trump administration’s huge corporate tax cuts of 2018, the proceeds of which overwhelmingly went not into productive investment but to share buybacks and dividends, benefiting the wealthy.

That is not to say Australia escaped completely unscathed from the GFC. Young people in particular experienced “scarring”, says Professor Jeff Borland, a specialist in labour market economics at the University of Melbourne.

“Scarring,” he says, “is defined to happen when there is a long-term negative impact on a worker due to some adverse labour market experience early in their work life.”

It’s an apt term, for the scars may remain for many years after the initial economic injury.

Borland’s analysis of the employment effects of the GFC shows those already established in the workplace – aged 25 to 54 – “bounced back pretty quickly” after a few years.

But the decline in the proportion of younger people – aged 15 to 24 – in employment was almost twice as great, and also took far longer to recover.

When he broke down the data among those younger people, he also found a big disparity according to educational attainment. Those with degrees did much better than those without.

People without tertiary qualifications, he says, “took a huge hit”.

“Their employment-population ratio fell by about 11 percentage points in the couple of years after the GFC. And it never recovered.”

There was no “V-shaped” recession and recovery for them, no snapback. “It was virtually an ‘L’,” Borland says.

The reality is that younger Australians have been doing it tough for a long time. Borland argues that since the GFC, slower rates of economic growth and the increasing employment of older people – a decade ago, one in 10 people over 65 in Australia was in the workforce, now it is one in six, and is forecast to be one in four by 2030 – have crowded them out.

As a result, the proportion of young Australians aged 15 to 24 in employment has fallen, in his estimation, by 4 to 5 percentage points.

Even before the GFC though, their lives were getting harder. Inequality increased sharply under the Howard government, as a result of various decisions that gave preferential treatment to investment income over labour income. As a result, asset prices boomed, massively benefiting those who already had assets and locking those who didn’t – particularly younger Australians – out of the property market.

The young were also the ones most affected by casualisation of the workforce, the gig economy and insecure employment generally.

And now, this.

There is a particular irony to the current crisis, as was neatly summed up by one young participant in the ABC’s Q&A this week. Seamus Tanna noted the median age of those hospitalised by coronavirus was 59.5 and the median age of death from the disease was 80. Yet it was young people such as him who were “bearing the brunt of an economic crisis caused by a health crisis that in theory affects us very little”.

Why should they accept that, he asked, and what should the government do to ease the burden on young people in particular?

The validity of his concern was underlined the next day, when the Australian Bureau of Statistics issued its first data on the impact of Covid-19.

The ABS found that in just three weeks from March 14 – when Australia recorded its 100th case of the virus – to April 4, some 6 per cent of Australian jobs disappeared.

But the economic pain was not shared equally. For people under the age of 20, the unemployment jump was far higher – 9.9 per cent.

Among those aged 20 to 29, the fall in jobs was 8.8 per cent; for those 30 to 39 it was 5.5; for 40- to 49-year-olds, 4.3. For those aged between 50 and 59, just 3.8 per cent. Even for those 60 to 69 – a group that includes some retirees – it was 4.4 per cent. Only among those aged 70 or over – very few of whom still work – did jobs vanish at anything like the rate they did for the young, with a 9.7 per cent shift.

And that ABS data related to the situation three weeks ago. Things have got worse since then, and will get worse yet.

The RBA governor, Philip Lowe, this week forecast that Australia would see “the biggest contraction in national output … since the 1930s”, with economic activity likely down 10 per cent over the first half of 2020. The unemployment rate would be 10 per cent by June, he said, and the total hours worked would fall a “staggeringly large” 20 per cent.

Other respectable economists think the hit could be even bigger.

The government’s reaction has been big in dollar terms, but also a bit late and more than a bit clumsy.

One respected independent economist, Saul Eslake, notes the Morrison government’s initial response was to offer what might be called a genuine stimulus package – $17.6 billion – promising payments of up to $750 to some 6.5 million people on government benefits, and money to businesses to encourage investment.

There’s not much point, however, giving $750 to someone to spend in the shops, if you’ve ordered the shops to close.

The government’s two subsequent packages, totalling almost $200 billion, are more properly described as life support payments rather than stimulus. They doubled the JobSeeker benefit to $1100 a fortnight for those out of work, and then came up with a $1500 JobKeeper payment for employers to pass on to employees to keep them in work.

But an estimated 1.1 million workers in insecure work were excluded from JobKeeper, a disproportionate number of them young people. Conversely, some employees who previously were paid less than $1500 a fortnight will see their pay go up.

It is all very clunky and arbitrary, even allowing for the fact this was policy done on the run. And it’s intended to expire after six months, after which time the unemployed – a situation far more people will find themselves in – will go back to receiving the old rate, far below the poverty line.

The government’s assumption is that, by then, the economy will be open again, and things will go back to the status quo ante. There will be a “V-shaped recovery”: quickly down and quickly back up.

It’s a wildly optimistic assumption, says Eslake.

“Some people won’t get their jobs back. People will have run down their savings and want to rebuild them. There’ll be higher debt-servicing payments for some people who have taken mortgage holidays. We will likely see falls in property prices because an important source of demand, namely international immigration, will be gone for a long time. Consumers will be reluctant to spend, and most private businesses will be very hesitant about investment,” he says.

Eslake thinks the government will need to spend a lot more money on what he calls “traditional stimulus”, such as building infrastructure, making further cash payments to low-income workers to encourage spending, and putting more into education and training to minimise the scarring of the young.

And not just the young.

“The history of past recessions tells us that people who do lose their job during recessions can take a long time to get them back,” he says. “And the longer you are out of work … the more likely it is that when you do find [a job], it will be of lower status and with lower pay.”

One thing Eslake sees no case for is company tax cuts. He says it is far better to offer corporates more targeted measures, such as investment allowances, that will encourage productive activity rather than buybacks and dividends.

All up, we’re looking at an economic cost of many hundreds of billions of dollars more, most of which, as Seamus Tanna said, will be borne by those who have little to fear from coronavirus.

It’s heresy to suggest the cure might be worse than the disease, but that’s what Professor Gigi Foster, a specialist in behavioural economics at the University of NSW Business School, did on Q&A.

Her argument was widely taken as a coldly utilitarian one that traded off the cost in human lives against the cost in dollars. But it was not. It was a lives-versus-lives argument, couched in economic terms.

Locking down a society has impacts, too, on both mental and physical health – depression, suicide, domestic and other violence, diseases undiagnosed or untreated. Consideration had to be given to what she called “traded lives”.

“Economists,” she said, “have tried to do that, and we try to do it in currencies like the value of a statistical life, or the quality-adjusted life year, or the wellbeing year. And those quantities enable you to think about lives on one side versus lives on the other.”

She dared suggest that “even with a very, very extreme epidemic in Australia, we are still potentially better off not having an economic lockdown … because of the incredible effects that you see not just in a short-run way, but in many, many years to come”.

When The Saturday Paper spoke to her later, Foster seemed pretty unfazed by the pile-on that followed her appearance. She also stressed that she was not opposed to prudent protections of the vulnerable but preferred the Swedish approach to Covid-19. The evidence to date is that Sweden’s policy, which has impinged far less on the liberty of most citizens and on economic activity, has cost more lives in the short term (although fewer than in countries such as the US, Britain, Italy and Spain), but possibly fewer over the longer term.

Time will tell.

Just as time will tell if our current government is sincere in its insistence that it is open to new ideas for coping with a singular economic crisis, arising from a singular health crisis.

But the signs of any positive change aren’t good. Particularly if we are planning to “align our efforts” with Donald Trump.

This article was first published in the print edition of The Saturday Paper on Apr 25, 2020 as "The generation Covid-19 will scar".

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Mike Seccombe
is The Saturday Paper’s national correspondent.

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