The Germans have a long and clever word for what the Coalition government has lacked these past seven years: Vorsorgeprinzip. It means the foresight principle. Had the government shown more foresight, the economy might not need taxpayers to shell out billions to deal with the economic consequences of a spreading public health crisis.
With the serious effects from the coronavirus sinking in daily, the message is blunt and urgent: the Morrison government needs to apply better foresight so that regulation is aimed not just at the good times, but for the bad times too, to protect the economy from the next economic shock, whatever its derivations. What is clear right now is that good-time laws — the chief example of which are the poorly named “responsible lending” laws, but there are many others — do not serve us well when the economy heads south.
Serious leaders govern for the day when the health of the Australian economy is in decline. That day is here. More businesses will go bust in coming months. Thousands of Australians will likely lose their jobs. Consumers will suffer from both, and others too, as production lines come under pressure. It is time for the Morrison government to level with Australians, not just about the unfolding health crisis, but about the state of our economy.
The Treasurer cannot keep telling us the fundamentals are fine. The economy is facing a recession in GDP terms. If you count population growth, we have already hit a recessionary bottom.
Frankly, Australian governments have had it too damn good. After 29 consecutive years of economic growth, federal and state, Labor and Coalition governments this past decade have regulated for the good times, choosing Keynesian spending over structural reforms. Only now is it becoming evident just how badly they failed us, choosing more and more regulation of business, always claiming that each new layer will be good for consumers and the economy.
When the stuff hits the fan, as it has with COVID-19, it is dawning that all those years of cumulative regulation, adding layer upon layer of burdens on business, are very bad for consumers, not to mention employees and other stakeholders in a business.
The likely consequences of this downturn might be less severe had governments, both Labor and Coalition, regulated businesses and the economy to help the country avoid, or at least better survive, a recession, rather than over-regulating business in the good times just for the sake of “doing something”.
If the coronavirus is to have a silver lining, it will be the acceptance of this reality. And it has been made even more bleedingly obvious following the statement released on Monday by the Council of Financial Regulators. In a two-page statement in response to the COVID-19 emergency, the co-ordinating body for Australia’s main financial regulators said, in effect, that regulators will offer regulatory relief and apply laws with a lighter touch to ensure that businesses can better serve their customers.
The council, chaired by the Reserve Bank of Australia, goes on to say: “For their part, APRA and ASIC will take account of the circumstances in which lenders, acting reasonably, are currently operating during the prevailing circumstances when administering their respective laws and regulations. Both agencies also stand ready to deal with problems firms may encounter in complying with the law due to the impact of COVID-19 through a facilitative and constructive approach. In particular, each agency will, where warranted, provide relief or waivers from regulatory requirements.”
This amounts to a series of damning admissions that regulatory requirements hinder business and hurt consumers. It is an admission that responsible lending laws (among other boom-time laws and regulations) are a disaster — drying up credit long before COVID-19 hit, and especially when credit is most needed. It is also an admission that we are far better relying on banks’ innate desire to avoid bad loans, and their hundreds of years of experience lending money.
There are multiple other examples. Laws facilitating green lawfare and a rapacious class action industry are killing projects we will need. The financial advisory industry is suffocating under the weight of Hayne-induced regulation, meaning financial advice is now unaffordable and not available to average Australians at the time they may most need it.
Some of Kenneth Hayne’s suggestions were long overdue, but others were overkill. The council’s call for more pragmatism from regulators is an admission there has not been enough pragmatism before. Without saying so explicitly, it is also an admission that governments have over-regulated businesses in the good times on the premise of protecting consumers, only to discover that, when economic fundamentals turn sour, those same regulatory burdens hurt consumers. In other words, the council’s statement amounts to a confession that nimble businesses, not hamstrung by heavy-handed and misguided regulation, are better placed to survive recessions, keeping people in jobs and serving customers.
This extraordinary statement from the Council of Financial Regulators raises some obvious questions. First, shouldn’t the Morrison government and Australia’s main financial regulators apply laws and regulations in a pragmatic way at all times, not just when a virus threatens the community? Put another way, the statement shows how far governments and regulators have drifted from regulating business through the full economic cycle, good and bad, not just for the peaks of economic good times. On that score, if this series of admissions does not put serious reform of over-regulation smack bang in the middle of the Treasurer’s desk, what will?
The statement should force some serious thinking within Treasury about its raison d’etre. Why, for example, has the government wasted time on secondary reforms such as banning cash transactions of more than $10,000 to catch a few crooks rather than reforming the regulatory system so business survives a recession? As straight-talking businessman Tony Shepherd put it last week: “A holiday from new business regulation at all levels of government would inspire confidence. A windback would be nirvana.”
Josh Frydenberg has the weight of expectation on him. He is as keen to emulate former Liberal treasurer Peter Costello as he is to avoid being another Wayne Swan by making promises he can’t keep. Frydenberg should remember Paul Keating too. He is the country’s finest role model of a treasurer, who levelled with the country when we faced the last recession. It’s worth repeating what he said in 1986: “If in the final analysis Australia is so undisciplined, so disinterested in its salvation and economic wellbeing that it doesn’t deal with … fundamental problems … then you are gone. You are a banana republic.”
This honesty about what Keating called Australia’s cargo cult mentality encouraged Australians to trust the Hawke-Keating government with structural reforms that altered the trajectory of this country for the better, helping to set up these 29 years of growth.
The next recession might be another one we have to have, if it shakes off the last vestiges of complacency stemming from Australia’s newest cargo cult mentality, brings an end to false narratives about the state of the economy, and inspires the government to finally front up to serious reform.