Prior to the CVP Australia’s economy was already afflicted by significant economic problems including the following:
- Stagnant real wage growth and high incidence of insecure employment;
- Falling investment and stagnant economic growth;
- Increasing economic inequality;
- Increasing gender inequality– Over the last 12 years, Australia has fallen from a rank of 15th to 44th on the World Economic Forum’s Global Gender Gap Index;
- Significant underemployment and underutilization of labour;
- Long term decline in productivity with the largest proportion of benefits from any productivity gains that did occur accruing to the wealthiest 1%;
- Failure to sufficiently progress measures to combat climate change and to transition towards a zero-emissions economy;
- Inadequate preparation for the known risk of a viral pandemic;
- Increased incidence of household and corporate debt (with household debt among the highest in the developed world);
- Failure of monetary policy to provide investment in the real economy sufficient to deliver full employment as opposed to upwards pressure on asset and share prices (including share buybacks);
- Insufficient emphasis on preventative health measures with associated failure to combat obesity and associated chronic diseases (whose sufferers have subsequently proved to be at greater risk of death from the CVP);
- Reliance on a small number of high volume exports into the global economy and a concomitant lack of complexity in the Australian economy;
- Continuing decline in housing affordability evident in a decreasing rate of homeownership, increasing insecurity in the private rental market, lengthening social housing waiting lists and increasing rate of homelessness;
- A taxation system that is less than optimal and which has contributed to housing unaffordability and created vertical fiscal imbalance as between Commonwealth and the State government responsiblities and the ability to fund (vertical fiscal imbalance).
Policy development should aim to address not only the recovery from the direct effects of the coroner virus economic crisis but also the deeper structural issues referred to above which have both been exposed and exacerbated by the virus-induced recession.
Andrew Charlton (former advisor to Prime Minister Kevin Rudd) has written that Australia requires a pipeline of economic activity beyond six months. Charlton says that the Rudd government implemented stimulus over three horizons: short term household support (cash payments), medium-term building programs (school halls, road maintenance, and social housing) and long term infrastructure projects (rail, major roads, and the NBN).
A major goal of economic reform and economic recovery should be job creation. The Australia Institute has produced an important paper on this issue ‘Design Principles for Fiscal Policy in a Pandemic- How to create jobs in the short term and lasting benefits in the long term’. The general principles are:
- Go early: Timeliness of the stimulus is key
- Go hard: The size of the stimulus is important
- Go households: Put purchasing power with households who are more likely to spend it
- Targets domestic production
- Targets activities with high direct employment intensities
- Targets those most impacted by the crisis
- Targets useful projects that deliver co-benefits
- Targets regional disadvantage
Here are some suggested areas for further policy development. They aim which aim to integrate the response to the CVP and the response to the pre-existing economic problems listed above.
Combatting climate change with an emphasis on green jobs
The debate around human-induced climate change needs to be reframed as a health and economic issue which if not redressed will have even more dire consequences than the CVP. The public needs to be encouraged to rely upon the scientific consensus on climate change similar to the CVP public health consensus.
Health impacts related to a warming planet, include heat stroke, asthma, allergies, the spread of infectious diseases, waterborne illnesses, food scarcity, and environmental refugees. There is no potential vaccine for climate change.
A national response to mitigating and adapting to climate change provides an opportunity for the creation of a more innovative economy and the creation of highly skilled well-paid Green jobs.
Government can afford to invest in climate change abatement and/or provide incentives for the private sector to do so as this investment will increase the productive capacity of the economy.
The Victoria Government is uniquely placed to lead the debate around climate change in Australia. Victoria’s Climate Change Act 2017 provides an example of the type of framework legislation that is required nationally.
The Climate Change Act:
- establishes a long-term emissions reduction target of net zero by 2050;
- requires five-yearly interim targets, to keep Victoria on track to meet this long-term target;
- introduces a new set of policy objectives and an updated set of guiding principles to embed climate change in government decision making;
- requires the government to develop a Climate Change Strategy every five years, which will set out how Victoria will meet its targets and adapt to the impacts of climate change (from 2020);
- requires Adaptation Action Plans for key systems that are either vulnerable to the impacts of climate change or essential to ensure Victoria is prepared (from 2021);
- establishes a pledging model to reduce emissions from the government’s own operations and from across the economy (from 2020);
- establishes a system of periodic reporting to provide transparency, accountability, and ensure the community remains informed.
The 2017-2020 Climate Change Adaptation Action Plan made under the Act will:
- build a detailed understanding of Victoria’s exposure to climate change risks and impacts;
- catalyse partnerships for integrated and effective responses to climate change;
- tackle immediate priorities to reduce climate change risks.
Sustainability Victoria already has campaigns that are demonstrating to Victorians how they can take action to mitigate and adapt to climate change:
- TAKE2- a pledge program that offers to show every Victorian how to take action on climate change;
- The Zero Net Carbon Homes pilot program which aims to develop sustainably-designed residential homes in Victoria and provide technical and marketing expertise to builders to facilitate the development, marketing and sales of such homes;
- The Love Food Hate Waste program which aims to help household reduce food waste at home;
- Grants and funding programs that seek to improve Victoria’s waste and recycling systems, encourage more efficient use of energy and help the state move towards a circular economy model.
- These types of programs should be rolled out nationally. This will require training and accreditation of personnel to deliver the programs, through new Green jobs. The aim should be to proactively offer assistance in these areas to each Australian household, business, and school community.
The Coalition has not yet foreshadowed a Rudd style infrastructure program.
An infrastructure program will be vital, especially for the construction sector, where the early indicators show that residential housing construction will decline rapidly once the current pipeline of new housing production is exhausted.
A sustained pipeline of social housing should be a priority because it can provide security and affordability to low and moderate-income households in the private rental market. This housing if well-located can also support labour market participation by key workers and precariously employed workers. The Rudd government invested $6 billion in social housing as part of its GFC stimulus.
A built environment retrofit program can improve energy efficiency outcomes of residential housing and commercial and industrial building and meet the coupled objectives of lowering energy costs and reducing carbon emissions.
The Commonwealth could again be urged to contribute, or even fully fund, cladding rectification to provide an economic stimulus plan for the construction industry.
Local governments across the country have long lists of labor-intensive small-scale infrastructure projects which can provide a pipeline of work. There is a particular need for this type of infrastructure renewal in areas devastated by the fires. Projects can include labour intensive programs that boost improve local environments, everything from tree planting and waterway clean-ups to cycle path construction and dune repair.
Improving the national broadband network, with a focus on reducing outages and building infrastructure that will allow homes to act as offices, especially in higher density areas.
Upgrading the electricity grid to facilitate the more rapid construction of renewable energy.
Improving the ability of Australian Post to deliver physical items to households, and the ability of ports and road transport to get things to where they are needed.
Building and encouraging the use of the robust technologies that will be needed to ensure keeping the spread of this virus and others low.
Online delivery for universities, including investment in materials for overseas students who will be given a commitment to be allowed to travel to Australian campuses once restrictions are removed.
Making Australia a world leader in the remote delivery of arts in a way that makes Australian culture available worldwide, and also a world leader in the local delivery of art via labour-intensive public artworks.
For longer-term infrastructure projects, consideration should be given to Infrastructure Australia priority projects.
Redressing the gender gap
A recent report from ‘Per Capita’ indicates that over the last 12 years, Australia has fallen from a rank of 15th to 44th on the World Economic Forum’s Global Gender Gap Index. Among other issues, women in Australia:
- Experience a gender pay gap;
- Work in feminized underpaid industries;
- Receive lower award wages than men;
- Experience motherhood as a penalty;
- Experience discrimination and sexual harassment in the workplace;
- Shoulder a disproportionate load of unpaid domestic work and parenting responsibilities;
- Are more likely to live in poverty;
- Retire with significantly less superannuation savings than men.
- The federal government should create a dedicated agency to work to redress gender gap issues. The agency should produce an annual Australian Gender Equality Report.
In the meantime, there is considerable expertise amongst civil society institutions, academic bodies, and other non-government organizations that can be drawn upon to develop a uniquely Australian set of indicators for assessing our progress towards gender equality and creating the basis for a strong annual report.
Unemployment and underemployment
In November 2019 prior to the advent of the CVP a Roy Morgan survey found that in October 2019 nearly 1.1 million Australians were unemployed (7.8% of the workforce) with an additional 1.2 million (8.9% of the workforce) now under-employed. That is a total of 2.3 million people either unemployed or underemployed.
This figure will increase significantly as a result of the economic crisis that will accompany the CVP. History tells us that every recession results in a rapid increase in unemployment and an increase in the number of long-term unemployed.
Even without a recession, private corporations have consistently been unable to provide enough demand for people’s skills. Labour force statistics for the start of 2018 show that there were only 201,600 private sector jobs being advertised for the 725,200 people looking for paid, full-time work. That’s almost four unemployed Australians competing for every available job, without even taking into account the 1.1 million Australians who want more hours.
Mutual obligation requirements placed upon welfare recipients become largely irrelevant when society is not meeting its obligation to provide everybody with the opportunity to work, including the opportunity to work full time. Article 23.1 of the Universal Declaration of Human Rights provides everyone has the right to work, and to protection against unemployment.
Accordingly, there should be no, or only partial, roll back in the increase in government support given to unemployed people through the new Job Seeker payment.
Given that the private sector could not provide enough jobs for those seeking employment or extra hours of work prior to the onset of the CVP, it is impossible to conceive that it will be able to do so in the midst of economic recession/depression even as the CVP health risks associated begin to abate. Further, the private sector often prefers to recruit from the already employed in preference to employing the unemployed.
Consideration should be given to a job guarantee. This would be a federally funded, locally administered initiative to directly end involuntary unemployment and underemployment. The Government would operate a buffer stock of jobs to absorb workers who are unable to find employment in the private sector. The pool expands (declines) when private sector activity declines (expands). The “buffer stock” employees would be paid the minimum wage and other minimum National Employment Standard conditions. Employment and spending automatically increases (decreases) as jobs are lost (gained) in the private sector.
Public health/preventative health measures
The CVP has once again highlighted that it is the public health system, not the private health system that takes the lead in a health crisis. Those countries with weak public health systems, including the USA, have proved more highly vulnerable to the CVP. No country has left the response to COVID-19 to its private health system. In Australia the private hospital system has had to be integrated with the public health system, to respond to the crisis by freeing up private hospital beds. The cost to the Federal Government to date has been $1.3 billion.
The private health insurance rebate costs the federal budget in the vicinity of $6.7 billion. The main effect of this expenditure is to facilitate preferential access to elective surgery based upon the capacity to pay rather than upon ethical criteria related to need/urgency.
People’s teeth continue to be treated by government as if they are not part of the human body and are therefore not covered by Medicare even though dental health is strongly correlated to general health. But more than 40 percent of Australian households earning less than $30,000 a year avoid or delay a visit to the dentist because of cost.
The CVP has confirmed the World Health Organization’s position as outlined in the report of its Commission on Social Determinants of Health. Employment class, social status, housing, and other social factors play a vital role in good health. Despite a multi-party Senate committee unanimously recommending that the federal government adopt the WHO report, Australia has not acted on any of its recommendations.
The healthcare system remains fragmented. The Commonwealth is responsible for primary healthcare, Medicare, regulation of therapeutic goods (including testing kits and protective equipment), aged care, the medical stockpile, and non-health policies including border control. The states and territories, meanwhile, have primary responsibility for the public hospital system, disease surveillance, and quarantine (within their jurisdictions), ambulance services, and most community and social care.
Australia’s primary care system (GP’s and other frontline practitioners) is poorly prepared to respond to a major public health threat. This not the fault of primary care practitioners. GPs have neither the resources nor the incentive to carry additional capacities — such as quarantine rooms and stockpiles of equipment — to deal with crises. Solving this problem means tackling fragmentation.
Personal Protection Equipment and other health industry requirements- The government will need to ensure Australia can produce and stockpile sufficient PPE and other health industry requirements so as to provide sufficient independence and protection for future or recurring pandemics.
Obesity and related chronic conditions such as diabetes led to higher morbidity rates for COVID-19 infections. We already know what the experts say needs to be done to combat obesity. The Rudd Government preventative health taskforce recommendations need to be reconsidered for implementation.
Health workers– additional paramedical health workers could be trained and accredited and deployed for appropriate interventions in schools and other community locations. They could be trained in hygiene, diet, mental health, and exercise. They could assist at the household or school level in the development of health plans for persons at risk of obesity. They could network with other health providers and community groups in the development of health plans and support groups so as to improve health outcomes.
Personal Protection Equipment and other health industry requirements- Government will need to ensure Australia can produce and stockpile sufficient PPE and other health industry requirements that provide sufficient protection for future or recurring pandemics.
Mental Health- Mental health is likely to be significantly impacted by the CVP. Victoria’s Royal Commission into mental health recommended a separate income stream for mental health. The implementation of this recommendation and any national implications could be considered.
Industry policy that will create greater self-sufficiency, productivity, and complexity in our economy
Australia has a very low level of complexity in its economy, in fact, the lowest of all OECD economies. Australia’s exports remain highly specialized in a few products such as iron ore, coal briquettes, higher education, gold, petroleum gas, and wheat. This renders our economy more susceptible to supply line and demand shocks such as that associated with the CVE. We have become very economically dependent upon China.
Greater economic independence and complexity necessarily involves the creation and/or maintenance of a workforce with sufficient skills to partake in those industries.
The public sector can play a pivotal role in leading the development of innovation. Government-led investment should open up new technological and market opportunities. This includes not only properly funding education, training, and research infrastructures but also providing early financing for innovative firms, and new key technologies, which private venture capital has proven too risk-averse to fund.
Where the state plays a role in the development of technologies that will be brought to market by the private sector, consideration should be given to how the state can take an equitable share in the marketing of the new product.
Many regional areas based on mining and manufacturing are losing jobs. Consideration should be given to the integration of regional and industry policy. As in Europe’s ‘Smart Specialisation’ policy regions could be asked to develop innovation plans as a condition of receiving industry policy grants.
The Productivity Commission 2017 report ‘Shifting the Dial’ recommended solving Australia’s energy market problems as the most important reform in boosting productivity in Australia. It recommended a carbon price and says that governments have placed insufficient reliance upon experts.
The government will need to chart a course for overcoming the impact of the CVP on Australia’s tertiary education sector. International student fees are the single largest source of university revenue. Viewed more broadly international students injected $31.9 billion into Australia’s economy in 2018-2019, through their fees to universities and participation in the Australian economy as workers and consumers. Their participation in the Australian economy within our cities and regions reflects the wide geographical distribution of Australian universities. The circumstances of many overseas students since they have lost their part-time jobs and are not receiving any government support is dire. They have been told to go home if they are unable to support themselves. Further, the future flow of foreign students in the medium-term future is likely to decline significantly. In this context, the financial security of Australian universities is in question as is their capacity to maintain high-quality teaching programs that are essential for a highly skilled and productive workforce. The capacity of universities to maintain their research performance essential for problem-solving and innovation in increasingly globalized collaborative research networks is also in question.
Dealing with growing economic inequality
It is likely that the CVP and the ensuing economic downturn will exacerbate inequality with lower-income people being the worst hit by the effects of the crisis.
Labor must not abandon criticism of growing economic inequality. Labor should not hesitate to refer to “the one percent” or “the half of one percent” when referring to increases in the concentration of wealth. Such terms have more precision than the vaguer concept of “big end of town”. They do not connote the politics of envy or class hatred. The terms are simply an objective description of the distribution of wealth and income.
Oxfam’s 2019 inequality factsheet states “The latest Credit Suisse data shows that the share of wealth concentrated in the hands of the top 1% of Australians was 22% last year (figure 2). As was the case in previous years, the top 1% of Australians own more wealth than the bottom 70% of all other Australians combined. This is while worker wage growth remains sluggish and the wealth share of the bottom half of Australians remains stuck at just 9% in 2018”
According to the ABC’sAustralia Talks survey, the overwhelming majority of Australians think inequality is a problem. Though the survey also shows half the nation thinks anyone who works hard enough can get out of poverty. Whether this view alters as a result of the forthcoming economic recession/depression remains to be seen.
Inquiry into economic inequality– It would be important for the government to take the community with it in relation to explaining and measuring the growth of economic inequality. The Whitlam Government’s Henderson Commission of Inquiry permanently changed the discussion in Australia around poverty. An inquiry into economic inequality could examine the following sorts of issues:
- What is the extent of economic inequality in Australia?
- What do Australians believe to be the extent of economic inequality in Australia and to what extent do their perceptions match reality?
- Who holds the wealth and in what form?
- How did this come about?
- Does the concentration of wealth in Australia pose a threat to democracy?
- How does the concentration of wealth impact aggregate demand and economic stability?
- What are the levels of economic inequality if any that Australians think is fair or tolerable?
- How does this compare to the actual situation?
- How will new technologies, including human enhancement technologies and artificial intelligence, and/or access to these technologies, impact upon inequality?[
- What are the policy options for reducing levels of economic inequality to levels Australians would regard as fair or tolerable?
A 2014 Productivity Commission report recognized that access to affordable childcare can lift workforce participation and benefit children’s development, particularly for those from disadvantaged backgrounds.
Childcare costs in Australia have been rising steadily over the past decade. It cost the federal budget $7.7 billion in 2018-19. In April 2020 the government committed $1.3 billion over three months announcing childcare would be free for more than 1 million families.
However early learning standards in Australia are low.
Former SA Labor premier has recently stated that the childcare system in Australia is fractured and dominated by private interests which should have no place in the system if early learning is to be a primary objective of the childcare system.
Policy options for the future of the childcare sector in Australia require consideration both from the perspective of women’s participation in the labour market and education standards.
In 2009 the Henry Review report was given to the Rudd Labor government. However, because of the GFC, few of the 138 recommendations have been implemented. The Henry Review recommendations could be reviewed with the objective of establishing a national system of taxation that is: more equitable and efficient; results in greater complementarity of federal and state/territory taxes.
The Rudd government’s original carbon pollution reduction scheme (CPRS) was still on the table when Dr Henry and his panel were writing their report, so they did not examine the area. The 2017 Productivity Commission report ‘Shifting the Dial’ supports pricing carbon.
Economists Neil Warren and Richard Highfield have suggested Introducing new taxes or increasing existing tax rates would threaten what will be a fragile recovery. But that there is the capacity to reduce tax concessions and close the tax gap. In 2016-17, the Commonwealth raised A$389 billion in taxes, intentionally gave away an estimated $166 billion and unintentionally failed to collect a further $30-35 billion that the Tax Office knows of. The tax gap estimates show billions can be raised from integrity measures such as addressing overclaimed work-related expenses ($3 billion), unreported cash wages ($1 billion) unreported rental property net income ($2 billion) and unreported business income ($2-3 billion).
The Victorian Treasurer Tim Pallas has already indicated support for the phasing out of stamp duty to be replaced by an annual land tax. Stamp duty is opposed by nearly all economists as a disincentive to housing mobility. The tax is also volatile and makes budgeting more difficult. However, land taxes are very efficient and more equitable. Although the ACT has moved unilaterally to phase out stamp duty it would be preferable for this reform to occur nationally. Both the Henry Review and the Productivity Commission ‘Shifting the Dial’ report recommended this reform.
Stagnant real wage growth and high incidence of insecure employment
The average annual growth in real wages in the five years to November 2018 was significantly less than the average recorded in the previous five years to November 2013—0.5 percent per annum compared with 1.8 percent per annum.
The major causes of the slowdown in wage growth cited by both the Reserve Bank of Australia (RBA) and Treasury include “excess capacity in the labour market” (code for unemployment and underemployment), a steady decline in inflation and inflationary expectations; and a decline in the terms of trade since the end of the mining boom.
The RBA and OECD state that slowing productivity growth is a significant factor in the explanation of wage stagnation in the Australian economy.
The ACTU has pointed to increases in the incidence of insecure employment and dysfunction in the enterprise bargaining system. The latter was supposed to provide a means through which negotiating parties could negotiate around and share the benefits of increased productivity. But this has been undermined by employers using “tactics such as outsourcing, offshoring, labour hire, terminating agreements, no stake agreements”. Also employers have stalled bargaining for long periods effectively freezing wages as well as threatening to terminate existing agreements and drop wages to award rates if employees do not vote for proposals that otherwise cut terms and conditions.
While there will be little to no capacity to increase real wages during the period of recession and economic recovery, in the medium turn consideration needs to be given to means of increasing secure work in the Australian economy, improving productivity improves and ensuring that the industrial relations system delivers workers a fair share in productivity gains.
Coalition attempts to use the CVP to further deregulate the labour market are likely to further reduce wages, reduce aggregate demand, foster division, and exacerbate economic malaise.
Another important element in realigning public opinion so as to be less hostile to public debt could be reform of the bond market. Perhaps unbeknown to many of them, most Australians share in government debt through their superannuation funds, or banks, purchasing government bonds. But even among those Australians with surplus funds to invest, very few buy government bonds directly. Retail investors only hold a minimal proportion of Australian Government Bonds.
Australian government bonds can currently only be purchased through stockbrokers (licensed ASX dealers), thereby incurring brokerage fees, and purchasers need a licensed CHESS account to make purchases.
A high proportion of bonds tend to be bought mainly by large financial investors. Indeed, when Peter Costello delivered budget surpluses in the early 2000s the bond market shrank. It was bond market heavyweights that successfully lobbied the government to maintain the bond market.
Economists James Morely and Richard Holden have called for the introduction of the equivalent of the war bonds that could be easily purchased by non-institutional investors during wartime. War bonds were issued in Australia to raise funds for both world wars. The purchase of the bonds was promoted by the Government as a patriotic endeavor. The bonds had maturities ranging from three to 10 years in the case of the First World War and five to seven years in the case of the Second World War. Bond certificates were purchased at a discount, with interest being incorporated in the face value of the certificate payable at maturity. Unlike ordinary bonds war bonds were not transferable on a secondary bond market.
Morely and Holden suggest the bonds could be called ‘COVID-19 bonds”. But bonds might also be offered to finance capital projects that will assist the transition to a zero-emissions economy. They might be called ”Climate change bonds” or “Green bonds”. This will enable Australians with sufficient savings with a secure way of investing in the fight against climate change.
Further policy development would be required to analyze issues such as:
- Accessibility of the bonds (they should be easily purchasable perhaps through Australia Post offices or online);
- Impact on the existing bond market;
- Promotion of the bonds;
- Structure of the bonds- term, coupons, yield to maturity, inflation adjustment if any, transferability, etc.
This article was written in association with Tony Dalton.