Last week the Australian Bureau of Statistics reported that Australia had a 6.2 per cent unemployment rate. Based on the collapse in hours worked, however, I guesstimate the jobless rate is closer to 9 per cent. An increase from 5.2 per cent unemployment to almost 9 per cent in just one month is a catastrophe.
To be fair, things could be worse. The federal government has committed to borrow an eye-watering sum of money and is subsidising businesses to maintain employees on their payroll. Right now a lot of people are still receiving an income, despite not actually working.
JobKeeper is not the most finely calibrated assistance package an Australian government has ever produced. But given the circumstances and the radical uncertainty government faced in the early days of the COVID pandemic, it is a pretty good effort. In principle, it could be fine-tuned, but that would be mean-spirited. Promises were made and promises should be kept.
One promise, in particular, should be kept: JobSeeker ends in late September.
Some have suggested that JobKeeper be maintained or that it evolve into a Universal Basic Income (UBI). The intellectual case for a UBI is bolstered by the fact that even free market economists such as Milton Friedman and Friedrich von Hayek supported the idea. But UBI is a solution looking for a problem to solve. Right now the economic problem Australia faces has a different solution.
The economic response to the COVID pandemic has been the greatest economic intervention in human history. Governments – Australia included – have tried to freeze their economies in place, until the medical crisis is under control, and will then attempt to unfreeze their economies. The hope is that the economy will ‘snap back’ into place and then all we need do is pay off the public debt.
Many economists at this point talk about V-shaped recoveries, or ‘swoosh’ recoveries and so on. If the economy doesn’t immediately pick up, the argument goes, maybe we should keep JobKeeper for longer.
JobKeeper, at the very best, can only be a temporary solution to a temporary problem. It worked to prevent Australia’s social fabric from unravelling in the face of a medical emergency and a policy-induced economic catastrophe. Over the years and decades to come, we will debate the necessity and urgency of those decisions. Right now that debate is a luxury we cannot afford.
JobKeeper will do nothing to restore our prosperity. In fact, the traditional tools of public policy are exhausted. Public debt has already blown out and monetary policy is ineffective. The economic challenges facing Australia – and many other countries too – are just starting.
The bottom line is that we as a nation simply cannot afford to pay people to sit at home and not produce. Now some economists will tell us that JobKeeper is a transfer and not a cost and so we have nothing to worry about. Others might tell us that public debt doesn’t really matter because we’re really just borrowing from ourselves. Whatever. The economy is not a perpetual motion machine running on fairy dust or unicorn farts.
The economic challenge that we now face is getting Australians back to work. Sit-down money had a place in securing our health – but won’t help in the next phase of recovery. Our economy is a lot smaller now than what it was at the beginning of the year. Australians are a lot poorer than what we were. The JobKeeper payments largely are disguising that loss of wealth.
Many government regulations, policies, and dare I say it entire agencies are now luxuries that we might have been able to afford in January, but not now. Anything that impedes employment or investment in the economy should be jettisoned. Australian governments have already done a fine job in suspending regulations and some taxes for the duration of the crisis. That just tells me that they already knew which regulations were unnecessarily burdensome on the economy.
Australians don’t just want to recover from the crisis – we want our pre-COVID prosperity restored. That means a long sustained period of high economic growth – to pay down our increased public debt and restore household balance sheets – not to mention income statements – to their pre-COVID levels. That can only be done in a low-tax environment with appropriately reduced levels of regulation.
Sinclair Davidson is a professor of economics at the RMIT Blockchain Innovation Hub and Adjunct Fellow at the IPA.