Coalition’s seismic economic shift
The earth moved on Monday, when the coronavirus pandemic opened up a wide chasm between Australia’s governing Coalition and its political substructure. Don’t take my word for it, take the prime minister’s: “We are living in unprecedented times with the twin battles that we face and that we fight against the virus and against the economic ruin that it can threaten. This calls for unprecedented action.”
In one fell swoop the commitment to small government and privatisation, to the eradication of debt and deficit as the measure of fiscal rectitude and efficiency, tumbled into the abyss. A sombre Morrison, whose hair has gone from grey to white in a matter of weeks, said his government has made a decision “that no government has made before in Australia … and I hope and pray they never have to again”. He said they were working to a whole new set of rules. “But it’s our principles and values as Australians that will guide us through this uncharted territory and will get us to the other side together.”
Morrison was on very firm ground here. Unlike in the United States, where the dominant ethos is of individuals and the market, Australians have always accepted and indeed demanded that governments step in and provide the services and protections that privately they can’t. Had the original colonies and then the states not built the roads, the railways, the power stations and other utilities, then they would not have happened. At least not in a way that enabled a small population on a vast continent to forge a nation that eventually became the world’s 13th-largest economy.
In a series of Tele-Town Hall conferences with his MPs since the crisis deepened, Morrison has heard scarcely a whimper of protest. If anything, in the latest one this week the pushback was coming from conservatives who were demanding more – the nationalisation of key assets rather than bailing them out with billions of taxpayers’ dollars.
The prime minister and his treasurer, Josh Frydenberg, are in no doubt that enough of their colleagues feel very strongly about this last point, especially in regard to the airlines. One says if Virgin Australia wants $1.4 billion to stay viable, the government should demand equity in return. This would see taxpayers own about 80 per cent of the hitherto majority foreign-owned business. Frydenberg has flagged his commitment to two major airlines. He may well think another billion dollars in the current context is a mere bagatelle but whether it goes to Virgin is by no means certain.
Morrison says his goal is “to protect the lives and livelihoods of Australians, to protect and preserve the very economy that we will depend on so significantly in the months ahead and on the other side as well, for the generations that will follow us out of this”. Economist Chris Richardson says the $130 billion wage subsidy package should go a long way to reinstating the employment of the one million Australians who lost their jobs last week. He says, however, that “not all businesses can survive, even with this help, and that’s where the boosted unemployment benefit should help”. The government will still have to spend billions more to achieve its stated goal, saving things such as childcare and regional transport, and Richardson says: “Instead of propping up bus lines or daycare centres, the government should just buy them.”
Despite ruling out a wage subsidy package for the past three weeks, the government began briefing journalists midweek that Morrison and his senior ministers had been working on one “for a while”. There’s no doubt Treasury was analysing the British model along with what was happening elsewhere, as is its job, but the spin claimed it was all Morrison’s idea. The Australian Council of Trade Unions held its own teleconference on Monday morning, before the government made its announcement. ACTU secretary Sally McManus had been in discussions with Industrial Relations Minister Christian Porter and had put proposals to him. She briefed the teleconference on the parameters of the plan.
After the announcement, McManus said the government had heard “the Australian union movement’s call to ensure that all workers are covered by a wage subsidy program”. On closer examination, it was clear not all casuals would be covered, nor foreigners on certain visas. The ACTU was also concerned that the $1500-a-fortnight subsidy may not be enough and called for it to be increased to the median wage, which is $1375 a week. The business sector, particularly small businesses, was worried the six-week delay in the government reimbursing them would see them unable to pay their workers.
Labor’s Tony Burke says it will be a long time before anyone goes to an election making debt and deficit a defining issue. Indeed, economists are forecasting the budget deficit when it is handed down in October will be in the order of $100 billion – a long way from the much-touted $5 billion surplus just a few months ago. Gross national debt is forecast to go beyond $1 trillion. Still, this will be affordable debt thanks to the mega-investments being made now to save as much as possible of the economy that existed before the government of necessity shut it down.
In stark contrast to the alarmist debt rhetoric coming from the Liberals during the past 10 years, Frydenberg was sanguine on Monday when the ABC’s Leigh Sales asked if any thought had been given to “how Australia will ultimately pay for this”. The treasurer said it would be paid back for years to come, but Australia had entered the crisis from a position of economic strength. “Our debt-to-GDP ratio is around 20 per cent,” he said. “That’s a quarter of what it is in the United Kingdom.” Asked if he now had a bit more sympathy for Labor’s spending to avoid recession in the global financial crisis, he said, “I’m not looking backwards, I’m looking forwards.”
Writing in The Australian, conservative commentator Greg Sheridan said the centre-right will need a new narrative in light of the $212 billion-and-rising that the government has thrown at the crisis. He wrote: “You cannot make the need for small government, free markets and less state intervention your chief political narrative if you have just used government on a scale never before imagined to rescue the nation from a desperate health emergency.”
In Guardian Australia, shadow treasurer Jim Chalmers wrote that we should begin planning for reconstruction now, as we learn from the lessons of the calamity. He said the crisis “brings to light what many Australians already knew firsthand: hollowing out the state hurts people. We’re seeing the cold hard consequences of years of cuts and closures dressed up as ‘savings’ and the outsourcing and offshoring of services in the name of ‘efficiency’.”
Labor had been calling for a wage subsidy for weeks and cited Britain’s 80 per cent of wages as a goal. It welcomed the Australian flat rate design but, like the unions, believes the amount is not enough to do the job.
Chalmers, who was deputy chief of staff to then treasurer Wayne Swan during the GFC, says it has been obvious for some time now that the otherwise welcome support for small and medium businesses has not been enough to maintain the link between employers and their workers throughout this crisis. The delay in producing the subsidy saw the rush of thousands to join Centrelink queues. Morrison has tried to paint the delay as the government taking time to produce well-considered measures. That excuse is more likely to impress those who so far have escaped the loss of their incomes and businesses.
Chalmers rejects any criticism that Anthony Albanese and Labor have been negative or have sought to score points during the emergency. On Monday, he told the media that Labor has been constructive, “but being constructive doesn’t mean being silent”. He said, “Where there are obvious gaps or where there are obvious flaws or where there is a lack of urgency, we will make those points as well.”
The essence of our democracy is the Westminster system of a contested parliament. Criticism of the opposition for doing its job seems foolishly misguided. Indeed, there is weight to concerns that the shutting down of the parliament for six months – something that didn’t happen during World War II – is an exercise in unaccountable autocracy.
At least Morrison has now undertaken to have a teleconference with Albanese and his key people once a week. He needed to on Thursday, to iron out details for the emergency sitting of parliament to pass the latest economic survival package. The complicated legislation is taking a lot of work but, by agreement with the opposition, will be presented for a one-day sitting of a “miniaturised” parliament next Wednesday.
Labor is not alone in believing the government squandered the three-week head start the virus outbreak gave Australia. Business and the unions have been critical of the slowness to learn the lessons from overseas. But no one can deny they are huge lessons.
This article was first published in the print edition of The Saturday Paper on Apr 4, 2020 as "Seismic shift in Coalition’s thinking".
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