Cut Red Tape for Australia’s Jobs – IPA Keeping In Touch – 14 April 2020

Written by:
14 April 2020
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Dear IPA Members

Anticipating the economic impact of COVID-19 and the health responses to it is a difficult task. Economic indicators, such as unemployment and GDP figures, lag behind the actual economy; a spike in joblessness can take months to show up in the official data, and by then may have been offset by the creation of jobs elsewhere.

In the early stages of the pandemic when governments around the world were considering how to respond, this created an interesting dynamic where real-time data – such as the number of cases and deaths, and the daily increases of each – could be used to drive public policy. Politicians and public servants did not seem too concerned with the economic impact of policies, leading to an almost-immediate and false dichotomy between “lives” and “livelihoods”. Those who were concerned about the economic impacts of a shutdown did not have the luxury of real-time data to back up their arguments, and were told to “stop talking about the economy” by the ABC’s Chief Economics Correspondent Emma Alberici.

This dynamic has since changed. Those solely concerned with the health impacts no longer have a monopoly on data, and there has been a shift in the public debate since Gideon Rozner released this video calling on the government to begin to safely reopen parts of the economy.

On April 3, the day before Gideon’s video was released, Kurt Wallace and I estimated that for each day of the shutdown 71,700 Australians lost their jobs. We knew that this was a conservative estimate, and noted that we did not consider the fact that many people have kept their jobs but with reduced hours.

Over the past week, the economic impact of COVID-19 and the shutdown have become clearer. Roy Morgan reports that an additional 1.4 million people have lost their jobs since mid-March, and a further 370,000 have had their incomes reduced. The Australian Bureau of Statistics reported that two-thirds of businesses have seen lower revenues, and seven per cent of businesses (or 166,300 firms) have completely ceased trading. The NAB business confidence survey dropped to -66 points for March, more than twice the depths seen in the midst of the GFC (-30 points) and more than triple those of the last recession (-20 points). Andrew Mohl, former chief executive of AMP and former director of the Commonwealth Bank, estimates that a six-month shutdown will cost the Australian economy $100 billion, roughly $550 million each day.

There is no question that COVID-19 presents a serious health issue. It is impossible to quantify the value of a life and to conduct a cost-benefit analysis to decide how many deaths can be tolerated while keeping the economy and society open as if nothing has changed. Contrary to what critics of the IPA have argued, we are not suggesting that the government return to business as usual. We are simply highlighting the fact that economic indicators are not abstractions. They are an important insight into peoples’ lives, and it is worth debating the current measures and the impact they are having on individuals, families, and communities.

The dignity of work is vital to a prosperous and flourishing life. A job provides much more than an income, it provides a source of meaning by allowing individuals to care for their families and contribute to their local community. There are clear and intrinsic links between work and wellbeing. A number of studies have confirmed the importance of maintaining employment – the unemployed are more likely to have poor physical and mental health, and their children are likely to be at a disadvantage in school. For the long-term unemployed, this creates a vicious cycle as the longer an individual remains out of work, the longer it takes them to find a job. As of January this year, about 25 per cent of unemployed people in Australia had been out of a job for more than a year. Of these people, around half had been unemployed for more than two years.

To try and minimise the devastating impacts of the shutdown, the federal government has announced unprecedented levels of spending. The bulk of this spending is the $130 billion JobKeeper scheme, which is a wage subsidy that aims to keep workers connected to their employer by covering $1,500 in wages per worker each fortnight for the next six months. This is an appropriate policy to mitigate the damage to lives and society caused by shutting down large sections of the economy.

However, public policy must address the debt burden this and other government responses will leave Australian taxpayers with. Going into the crisis, gross federal government debt was already $575 billion, costing $16 billion each year in interest alone. We have estimated that over the next two to three years, federal debt will balloon to $1 trillion and interest payments will nearly double to about $30 billion annually. If Australia loses its AAA credit rating or if interest rates rise, these interest costs will become even higher.

All this new spending and debt will have to be paid for somehow. It took the current government seven years to restore the budget to a modest surplus and begin to pay off debt that has built up since the Howard years. The government must look to cut costs where possible to service this debt; taxpayers can no longer afford the annual $5.7 billion public sector wage premium, the virtue signalling of the $10 billion Clean Energy Finance Corporation, or the ABC’s $522 million property portfolio, as Daniel Wild highlighted in a recent article in The Australian. 

The recovery from this crisis will be long and sluggish, and made more difficult given the fact that the economy was structurally unsound prior to the shutdown. Investment is low, taxes are high, and red tape continues to hamstring individuals and businesses.

New private sector business investment is just 10.9 per cent of GDP, a low not seen since the last recession and well below the average of 13.7 per cent during the economically-hostile Whitlam years. Australia has the equal second highest corporate tax rate in the OECD at 30 per cent, well above the average of 23 per cent. And the IPA has calculated that there has been an 80 per cent increase in regulation since 2005 at the federal level with some 356,198 individual regulations currently in force.

It will take decades to recover from the COVID-19 crisis and pay off the extraordinary levels of debt incurred in an effort to “hibernate” the economy. The plan for recovery must include a reform agenda to make Australia a more resilient, competitive, and prosperous nation.

One of the most important public policy initiatives in facilitating economic recovery will be for governments at the Commonwealth and state levels to cut red tape. As you will have read in last week’s edition of the IPA’s Hey… What did I miss? email, cutting red tape has always been a focus of the IPA’s research going back to 1943 when the IPA was founded. Over the years, though, the impetus for red tape reduction changed and is today focussed primary on jobs. This change in priority is captured in the re-framing of the IPA’s red tape reduction program to be Cut Red Tape for Australia’s Jobs.

Absolutely everything that governments do over the coming months and years must be directed toward getting as many Australians into a job as possible.

IPA research calculated that each year red tape costs $176 billion in forgone economic output, which is approximately 10 per cent of GDP. This makes red tape Australia’s biggest industry. This estimate is more than an empirical abstraction. It captures all of the businesses which are never started, the jobs never created, and the dreams which remain unfulfilled because of red tape.

Cutting red tape, along with reducing corporate, personal income, and payroll taxes, and reducing the size of the public service will be necessary to secure a prosperous and more free nation for the next generation of Australians.

Thank you for your support.

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