Forget the politics of stimulus and seize the opportunity to reform


This has nothing to do with the coronavirus. It has more to do with printing money, systemic risks and a significant loss of confidence in our economy and its governance. Our economy has been weakening over the past couple of years – indeed, it has only avoided recording negative growth in some quarters by the fortuitous movement in a key source of growth, such as government spending or a favourable trade number.

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Although overall growth has, so far, remained positive, other key economic measures have emphasised the structural weaknesses. Wages have been flat-lining, household debts have reached historic and global highs (about 120 per cent of GDP, and near 200 per cent of household disposable income), productivity has been weak, and measured unemployment is rising again, with 2 million Australians either unemployed or unable to get as much work as they wish. The bushfires, coming on top of a historically severe drought, were beginning to further constrain our growth, despite commitments to various recovery measures.

Not surprisingly, the government’s rhetoric claiming a strong economy and a commitment to keep it strong have not resonated with the lived experience of most Australians, quiet or otherwise, struggling to meet the ever-rising costs of living.

The negative impact of this on consumer and business confidence was further compounded by the government’s consistent rejection of many calls from the Reserve Bank and civil society to stimulate economic activity, sticking with its seeming obsession with claiming the budget was “back in the black”, before it actually was.

The government now seems to accept a short, relatively sharp, hit on the economy from the virus in this March quarter, but is working to create the impression it will begin to reverse it by mid-year. There is no evidence to suggest that this will be the case, given projections from key medicos that the virus could spread to a majority of the population, that a vaccine could take at least 18 months to develop and implement, and given what are significant disruptions to global supply chains, over and above direct impacts on key sectors such as tourism and education.

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Our Treasury estimates of a March quarter hit of about 0.5 per cent on the growth rate, on top of about 0.2 per cent from the fires, ignore the global supply chain effects. The probability of a longer-term recession, lasting several quarters, should not be underestimated.

The opportunity to initiate a longer-term program of structural reform should not be squandered. And with interest rates at such historic lows, the opportunity for the government to use its AAA status to borrow long-term (over 30 to 50 years) at less than 2 per cent opens the opportunity to launch a genuine infrastructure revolution.

Global central banks, sovereign wealth funds, and pension/superannuation funds are looking for such an asset class. It would be possible to borrow hundreds of billions to be professionally managed outside of government, in perhaps our own wealth fund, to be allocated productively to viable infrastructure projects, which could be expected to service and make a return on financing costs.

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It is also an opportunity to launch a detailed, sector-by-sector, transition strategy to a low-carbon Australia by mid-century.

The Prime Minister desperately needs to lead in what will be the most challenging of global and domestic circumstances.

John Hewson is a professor at the Crawford School of Public Policy, ANU, and a former Liberal opposition leader.

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